Why I think the property market and economy will be okay

There have been a number of economists and commentators who have predicted that property values will fall anywhere between 10% and 32% this year. It seems like it’s almost become a competition for who can be the most bearish.However, my view is a lot less bearish. I believe property values won’t fall by more than 10% and it’s quite possible that they might not fall at all.You could be excused for thinking that I’m an unrealistic property optimist, but I promise that is not the case. Of course, all assets can fall in value and I have written about the four key drivers to watch out before here.What is needed for property prices to fall by more than 10%The predictions of property value declines are usually premised on the assumption that there will be more sellers than buyers. And perhaps some of those sellers are financially distressed, need to sell quickly and as such will drop their price to secure the sale. The occurrence of forced selling tends to weigh on property sentiment and the negative spiral begins.However, the fact is that people will fight hard to avoid having to sell their home. It is their ‘castle’ and it’s that last thing they want to do. At the moment, banks are allowing borrowers to pause their repayments for up to six months. This avoids the need to sell a property of you are in financial strife. However, these repayment pauses will expire around September. This is also when JobKeeper payments are expected to cease and many people are worried about the impact.What happens after September?Firstly, we have to remind ourselves that most people haven’t been materially adversely impacted by the Covid shutdown. Our research (survey size of 451 people from various employment arrangements and ages) suggests that two thirds of people have experienced an income reduction of less than 15% - many haven’t been impacted at all.WOf the people that have been impacted by Covid-19, almost two thirds of them expect to recover their income back to pre-Covid levels within the next 12 months.hSome people will need more supportNotably, 8% of respondents said that they were not confident that they could successfully service their loan repayments after September 2020. It is this group of people that may need additional support from the government and banking sector.yIf a borrower is unable to resume making normal loan repayments the bank will have to assess how long it may take the borrower to recover their income. If the bank believes it will take less than say a year, then I expect it would be very willing to agree to alternative repayment terms, which may include a second (full or partial) repayment pause period. In fact, the banks might formulate policies targeting specifically industries e.g. additional support for people that work in hospitality and tourism.Westpac recently announced last week that it will allow borrowers impacted by Covid to switch from principal and interest repayments to interest only repayments for up to 12 months – avoiding the normal credit approval processes. I expect other banks will follow suit.Banks will only force a borrower to sell their property if they believe it’s the only way it can get its money back. Foreclosing is usually a banks last resort, particularly in a post Royal Commission environment.And it is very likely that there will be more targeted stimulusThe goverMy new book is available for pre-order now: Pre-ordering the book will help me get it into bookstores. So please do me a favour - please consider pre-ordering now - links and pre-order bonus are available here: https://prosolution.com.au/book-preorder-bonus Do you have a question for the podcast? Email us at [email protected]. If you're interested in working with our team and me, discover how we can work together here: https://prosolution.com.au/family-office-servicesIf this episode resonated with you, please leave a rating on your favourite podcast platform. Subscribe to my weekly blog: https://prosolution.com.au/stay-connected IMPORTANT: This podcast provides general information about finance, taxes, and credit. This means that the content does not consider your specific objectives, financial situation, or needs. It is crucial for you to assess whether the information is suitable for your circumstances before taking any actions based on it. If you find yourself uncertain about the relevance or your specific needs, it is advisable to seek advice from a licensed and trustworthy professional.