2009 has started with a throaty splutter. No raging blaze of buyer activity or even a quaint bonfire, just a splutter. It’s official that December 2008 represented the lowest level of property sales activity in recorded US history – the worst since the enormity of events like World War 2 and The Great Depression.
The International Monetary Fund (IMF) has suggested ‘The world economy is at a standstill, with the major developed countries in deep recession’. The UK is predicted to be the worst affected of all developed nations, with negligible sales activity and plunging prices. The Pound (Sterling) is almost at parity with the Euro and the financially fueled UK economy has a bleak outlook.
Professor Ian Harper of Access Economics in Australia (in the presence of Henry Thornton – we are a fan) has stated that Australia is already in recession (yet still unofficial), unemployment will rise to 10%, the current account deficit (CAD) will ‘widen substantially’ and the Australian dollar will fall to around 0.40 or 0.50 cents to the US dollar. The currency fall will add to debt and inflation – This is all proving to be a “Perfect Storm”
The Australian recession will be sharp, deep and long – dependent on the recovery of consumer confidence. The enormous decrease in demand from China will burrow into Australia’s recovery prospects and managing the recession will be extremely difficult with interest rates in Australia already at all time lows.
Where Next For Real Estate?
The question is where does this leave property? I am an extremely optimistic person and I have maintained a positive outlook. I have heard the arguments from people that negative media about the industry will do nothing but harm, however it really is time to get “real”.
Sales under $500,000 are really the ones keeping food on the table for most real estate agents and Brokers. This is a strange situation for those located in blue ribbon areas in cities like Sydney where prices in the multi-millions are commonplace – usually. The “Perfect Storm” is having an enormous impact on real estate as buyers and vendors struggle to agree on price.
I have presented two offers from buyers to homeowners in the last two weeks that were rejected. These offers were high in the context of the current environment and are unlikely to be repeated in the foreseeable future. Vendors who have been battered on the stock market are still clinging to property as their “last real hope” in recovering some of their lost ground.
I see residential real estate in Australia as being in a “no man’s land” right now as we wait for official confirmation of what we already know is on the way. Many buyers are choosing to wait to take advantage of lower prices and are showing extreme caution when putting offers forward. Vendors who are clinging to “hope” are refusing to accept offers which they will not receive again for some time – offers which would be accepted if they were made in a few months time.
Australia’s level of net immigration will assist Sydney and Melbourne in the battle to reduce plunging property prices. Those needing to buy or sell will do so and those in the fortunate position to take advantage of the economic discomfort of others will be in the box seat. Regional Australia and the smaller cities are looking very shaky with low buyer demand and pricing already at 2003 levels.