What’s going on guys Its Jordan de Jong here and today I want to talk about if the property market could actually see a significant crash, specifically I’ll be talking about Sydney and Melbourne as they are the two most dominant markets, and even still there are submarkets within these cities that will be more impacted than others. All markets go through there cycles, there’s no doubt right now that the property market has slowed down, unfortunately, due to the lag of data its hard to really determine the current state of where we are at, what we do know though, is there is plenty of uncertainty out there and the market has almost ceased transacting. What we have seen in recent data is auction clearance rates dropping to 37% due to the ban of on-site auctions, for the context in the last market slow down between 2017 and 2019 we saw auction clearance rates bottom out at around 40% and, not only 2 weeks ago we were seeing clearance rates of 70%+ so auctions have come to a halt. Although just a side note, We can’t compare apples to apples in any market, we just know they move in cycles, if your trying to relate this to the market downturn in 2017 to 2019 that was a man-made market turn down, mostly driven from APRA playing with the lending levers, what we are seeing now is a pandemic causing the economy come to a stop. Mixed in with this clearance rate is an auction withdrawal, meaning if a property is withdrawn from its auction it is considered a non-sale result and with all this uncertainty we have seen 50.2% of auctions been withdrawn, on a positive note, what we have seen is 66.7% of auctions being sold prior to auction, so a lot more pre-auction and private sales are being transacted. Historically, auction clearance rates have been a great indicator of the direction the market is heading, and Louis Christopher from SQM research has been quoted to say that he can start to see a market turn based on the reported auction clearance rates. So going forward in the current market, not being able to see a clean and accurate clearance rate makes it even harder to see what is happening, speaking of Louis, he has just released a research document on why a 30% decline is a real possibility which has triggered me to make this video and if your loving my content make sure you smash that like button. Louis clearly stated that he has not modeled this 30% peak to trough decline and its pretty obvious that trying to model anything in the current environment is pretty impossible, especially considering big indicators such as the auction clearance rate aren’t being reported under their usual conditions. What Louse did say about this 30% decline is, the most overvalued cities would be hit the hardest, that is Sydney and Melbourne. Other cities should do better than a 30% correction given their relative fair value. He also said, Now some of you will note that during The Great Depression, the Australian housing market did not correct by this magnitude. Nor, during the Spanish plague of 1919 did the Australian housing market record such a correction. However, those two markets were not laden with the debt burden our current housing market has. Not even close. It's still very early days to see any of this play out but what we have seen in recent value data is the rolling 28-day change in the daily home value index from CoreLogic, nothing dramatic but there is an indication of a drop which is to be expected. Because property as an asset class if very illiquid, meaning we can’t just go out tomorrow and sell our property without significant costs, we don’t see prices fall dramatically overnight like the stock markets do, however, a snowball effect can take place over time, say everyone listing their properties for sale and listing numbers start adding up, we could see a lot of stock on market at a discounted value. By overtime I mean, say someone who has just lost their job is now in financial stress to repay their mortgage, they might have some cash savings say 5-10K that they could eat into, but eventually, that would all get eaten up after a couple of months and they need that money to put food on the table, obviously, banks are helping people in this scenario but we will get into that later in the video. Before we get into it I also want to talk about the rental market, usually, the rental market and property market aren’t specifically correlated, in fact, if you think about if rents started to increase while mortgage repayments were decreasing, it may make the thought of buying a property instead of renting a property, for the same running costs, more enticing. What we are seeing pretty dramatically change is the rental market, with our borders shut and many international residences returning home, they’re no longer renting housing in Australia if they are contracted to do so they are, however, if they were on a month to month roll over they would have just packed up and gone home. On top of this, no tourism or people is visiting Sydney or Melbourne for a holiday, wedding or to visit family, so the recent boom in short term accommodation such as Airbnb has been whiplashed back to long term accommodation, together this has resulted in a surcharge of rental listings coming onto the market. We can see this through sites such as domain by tracking how many rental listings there are daily, this is a pure supply and demand market right now, with skyrocketing supply and demand shortage due to those residence returning to their home countries and Aussies losing their jobs, meaning they might be going back to live a at home or on a friends couch. In my opinion, this will most likely lead to rental listing prices being reduced and will have an impact on the rental yields for investors, so what does this mean for the property market, with less rental yield, subject to property prices, and uncertainty if their even going to get a tenant, and if they do, will the tenant pay their rent, could lead to less demand in the market from investors. Although I would never recommend an investor sell an investment property unless they had to, there are still some investors that will irrationally react to this market and others who are in real financial difficulties forcing them to sell their property at a discount. There is plenty of stimulus for investors in this position right now, and banks are giving 6-month mortgage repayment holidays to those in financial stress, so there are options for investors in this position to hold onto their assets for the short term. As for owner-occupiers, money is cheap right now, in fact, it’s the cheapest it’s ever been, we are seeing fixed loans being locked in at a rate of 2.05%, and the RBA has stated that it won’t be rising the cash rate anytime soon, specifically when unemployment gets back down to 4%. Given the incentives that are already in the market for first home buyers, this could be a golden opportunity for renters who are in the right financial position and have strong job security to buy a place of residence. Additionally, if the rental market conditions are being relaxed, tenants may have more flexibility to their rental terms, such as going to a month to month or having reduced rent payments, this would allow them some breathing time, save as much as possible and potentially get into the market over the next 6-12 months. So, although there may be a slowdown from investors, there may be an increasing demand from first-time buyers once there is more certainty about the market, and this flows up the chain, upgraders can move into bigger homes and downsize scan move into their desired areas. I guess uncertainty and time are the biggest two factors here, we don’t know how long this pandemic is going to pan out for, there is no clear end date right now, we don’t have an approved vaccine and we don’t have enough information about the virus to have a clearer picture of how the next 6-18 months will look. Again, how long after we lift lockdown restrictions will we open the international boarders again, a big proportion of population growth in Australia is through migration, and without people coming into Australia there is less demand in the market overall for both rentals and owner-occupiers looking to buy. The Government and RBA keep talking about building a bridge, which was originally coined by Christopher Joy, don’t worry, I got our back Chris, but how big can they build this bridge, if we are shut down for 12-18 months will they continue to pump stimulus into the economy, will they allow interest repayments to go unpaid for 18 months? Who knows. If this really is a long haul, then we could be in for some serious trouble, without continual stimulus from the government we will surely head into a depression and the impact on the property market will be unprecedented. A 30% decline cannot be ruled out, although it would take the very worst-case scenario for this to happen and to be frank, we would have much more to worry about than the property market in this scenario. On the other side, if we continue to print money out of thin air, literally pools of money are being printed, and when to the economy does go back to normal, the pools will be soaked up, all the money that’s in the economy already, plus everything that’s printed will combine together and prices of all goods and services will increase. This will, in relative terms, increase the prices of the property too, if there is enough inflation to see it reflect dramatically on the property, it could lead to a sharp upturn in property prices, but this is very different than demand-driven price increase. A demand-driven price increase mostly comes from owner-occupier appeal, essentially, homes and areas where people actually want to live and this is why markets like Sydney and Melbourne have increased to the levels we have seen recently. Their prices are significantly higher than the rest of country because there’s a larger population of people that provide demand for those markets, which over 30 years of positive economic growth have inflated the prices to a point where it requires two strong incomes in the family to service a loan of that size. I think we can get through 6 months, not unscathed, but I think as a country we can hold steady, 12 months will be much harder and require continuous stimulus, those existing investors still in financial hardship will require additional compensation, and if they don’t get it we may see more listings come onto the market. Anything longer than 12 months will be detrimental to the economy and could take some time to get back to having double-income families servicing the large debts we are seeing today, this would lead to less demand from both investors and owner occupies for a property that is priced at the current levels in the larger markets and we could see prices being significantly reduced. As always, seek your own professional financial, legal, taxation & property investing advice for your current situation, these videos are just my opinion and general in nature and should never be considered personal advice. Until next time, happy house hunting.

DISCLAIMER: No Financial, Property Buying, Legal, Taxation or Accounting Advice The Listener, Reader or Viewer acknowledges and agrees that: Any information provided by me is provided as general information and for general information purposes only; I have not taken the Listener, Reader or Viewers personal and financial circumstances into account when providing information; I must not and have not provided legal, financial, property buying, accounting or taxation advice to the Listener, Reader or Viewer; The information provided must be verified by the Listener, Reader or Viewer prior to the Listener, Reader or Viewer acting or relying on the information by an independent professional advisor including a legal, financial, taxation, accounting and property buying; The information may not be suitable or applicable to the Listener, Reader or Viewer's individual circumstances; I do not hold an Australian Financial Services Licence as defined by section 9 of the Corporations Act 2001 (Cth) and we are not authorised to provide financial services to the Listener, Reader or Viewer, and we have not provided financial services to the Listener, Reader or Viewer.