COVID refugees inflating the real estate market
I had this note from a subscriber the other day,
“Hi Catherine. I read the last few monthly reports again. I wonder if the lockdowns and Covid act as a key part of the cycle.
Here is what I was thinking.
Liquidity and credit growth increases to manage lockdowns etc .Inflation - greater refinance on homes etc down the track- money going into land values - refinance - government increases rates around 2024-25 - start of recession or peak.
Would like to know your thoughts - a post or report? Sanil”
Globally, we have an unprecedented level of Government spending and infrastructure investment - along with rapid technological development to adapt to the new “war on COVID.”
As Henry George wrote in Progress & Poverty (1879)
“All I wish to make clear is that, without any increase in population, the progress of invention constantly tends to give a larger proportion of the produce to the owners of land, and a smaller and smaller proportion to labor and capital.”
In other words - Land takes the gains.
Australia wide, values are 14 per cent higher than the start of the year - more than 16 per cent in the last 12 months alone.
It’s the fastest rise in more than 25 years!
In Sydney, Canberra, Hobart, and Darwin, median prices have shot up over 20% in 12 months.
A larger increase than any in the main steam would have dared forecast in the middle of COVID 2020.
But equally, one of the prime reasons for this, is an exodus of COVID Refugees escaping lockdowns.
Speculators are riding on the back of it.
Home buyers and investors are slapping offers on the table sight unseen. Mainly in regional locations and the smaller capitals.
I’ve never seen anything like it – at least not since I started working in the Aussie real estate market - some 14/15 years ago.
In every negotiation, I’m competing against multiple bidders, and that’s before the property even hits the net,
Generally, not one buyer has set foot in the joint.
They’re making assessments based on photos or a video walkthrough, taken with a fisheye lense and where possible, slapping the offer down subject to a building inspection to ‘be safe’.
The only way you can secure a deal and beat the competition is to move fast. And with lockdowns and the speed the market is moving at, it often means not even enough time to organise an inspection.
With this, buyers are bidding blind.
There’s no indication of what the other offers are.
They’re signing statements prior to making an offer to state they are putting down their “best and highest.”
Could be 1K higher than the underbidder or 20K – there’s no way of knowing.
If you don’t have the experience to handle this process (as one buyer said to me last week) it feels like gambling.
Prices have been moving so fast, it’s impossible for many to assess if they are overpaying – such is the panic to get into the market.
And get this.
In the three months to July the sales to listing ratio has been pushed over 1.4.
This is a ratio that is calculated by dividing the number of sales that have taken place over 3 months, by the number of new listings added to the market over the same period.
For the past decade, the ratio has averaged at 0.9.
That means that for each listing added to market, there has been just under 1 purchase that took place.
A pretty-balanced market.
Close to one buyer for every one seller.
That has now changed.
At 1.4, the ratio shows there’s more than one transaction taking place for every new item of stock to be listed over the same period.
In other words – too many buyers.
And the trend is not going to change short term.
In a hot market
1) Investors don’t rush to sell. Why sell now if you can get more in 6 months’ time? and
2) Home buyers fear selling not knowing whether to sell and buy or buy and sell.
Either way, they risk going onto bridging finance to the tune of thousands.
Here’s the breakdown of the sales to listing ratio per state.
South Australian readers will be pleased to note that Adelaide is taking it off the charts.
Suburbs showing the biggest increase over a 12-month period – with the median jumping over 70% are,
- Goodwood (76.86 per cent),
- Noarlunga Downs (70.61 per cent) and
- North Adelaide (70.16 per cent).
These are median gains.
The gains on individual property prices across Australia, in a matter of a few months, are insane.
Once again – something I have never witnessed to this extent before.
I’m talking to the tune of $200-$300K in 6-8 months.
Take the affluent suburb of Attadale in Perth for example.
Situated on the river, approximately 9km from Perth’s CBD.
It’s a tightly held area.
Not many properties come up for sale.
Those that do, sell for well over a million.
One that caught my eye the other week, was marketed as an entry level opportunity.
A dated property on 857sqm marketed at $1.4M.
Over 100 home buyers rocked up to the first open home.
It was barely possibly to move inside.
The agent got 6 offers over the price range straight after the open home.
The property is now formally “under offer” at over 1.4M.
That doesn’t sound like much of a story.
However, it was purchased just over a year ago (April 2020) for $1Mil.
That’s a $400K inflationary gain in a year!
These trends are not isolated to Australia.
The same is happening overseas.
Take New York.
I have a mate who’s lived there all his life – Simon.
He’s pretty miserable.
New York was locked down longer than any other state in 2020.
Now they are about to legislate vaccine passports.
You need one to enter any public establishment – including cafes.
That’s pushed Simon (and many others) over the edge. The city is dead, and scores of people are leaving.
We were having a chat the other day and he mentioned he was thinking of moving to South Florida.
Florida has committed to no lockdowns and no vaccine passports.
No surprise then, that Florida, was the No. 1 destination for relocating Americans in 2020.
In fact, in the year to April 2021 well over 300,000 new residents have relocated there!
Sara Guando, 34, originally from Ridge, said the COVID-19 pandemic prompted her to make the move to Tampa in February….
"New York was closed, New Jersey was closed," she said. "There were people who were saying, 'I really want to come down to Florida. I want to accelerate my plans.'"[CC1]
And you guessed it - that’s produced a real estate boom.
Lakeland and Winter Haven, Florida, have recorded the biggest U.S. median home price gain among U.S. cities in the 12 months to June.
Median prices up over 30% - that’s huge.
“Some movers want in so bad that they’re willing to live in a spot they’ve never visited in person.
“Realtors we talk to have said many people are buying property sight unseen,” says Colin B. Exelby, a certified financial planner and the president and founder of Celestial Wealth Management.”[CC2]
So in short, Sanil is correct.
COVID is producing all the conditions needed to give us a spectacular run up in the second half of this cycle – fitting in the with the forecast we made prior to COVID.
It’s perhaps the greatest opportunity you’ll have to take advantage of the real estate cycle in your lifetime.
The trends are unprecedented.
But let’s be clear.
It’s not the reason we have high property prices in Australia – or a booming real estate market per se.
The reason we have high and rising property prices down to the real driver of the 18.6-year property cycle.
I showed you in June’s monthly edition, that it can be traced back centuries.
The locations where it occurs, and the reason it occurs, is due to policies that allow people to own, and extract, the economic rent of land.
Australia being a prime example.
It is this that produces the conditions that attract speculators.
It’s worth noting that Florida is one of a handful of states that doesn’t levy a state income tax.
Residents also pay less than 1% for property taxes (compared to other states that pay 2-3%.)
In other words – areas where land is lightly taxed, will always attract the greatest speculation.
Until this changes, the cycle will continue.
My advice for now?
Find ways to gain exposure to land in the locations attracting this population influx of Delta Refugees.
A solid suburban house on a subdividable block of land.
You don’t need deep pockets for this.
In many regional areas, rents are still covering interest and you can buy in for less than $500K.
In some towns – I’ve seen prices double from what they were selling for only 3 years ago.
These are rapid gains – proving that it’s not “time in the market” that counts in real estate (as many profess), but “timing the market” in accordance with the cycle.
Likewise, in the smaller (by population) capitals – Perth, Brisbane, and South Australia.
I have many tips in Cashmore’s Real Estate Wealth course that show how you can practically take advantage of these trends and beat the competition in a hot market.
Prices are going to go a lot higher as we head into the end phases of this real estate cycle.
Make sure you don’t miss out.