Market update – Getting your ducks in a row before the economy opens up! (Ep.45)

Property Planner, Buyer and Professor Podcast

In this week’s episode we turned our thoughts to focusing on planning for your next decision, as the governments start planning for, and in some cases such as WA and QLD, removing restrictions to open up the economy.

It takes time to develop your property plan and selection strategy for the next purchase. This all happens before you can even begin the searching process and get your finance approved.

In this episode David Johnston, Cate Bakos and Peter Koulizos take you through:

Confidence and market sentiment continue to rise with the data telling us more people are walking, driving and working as two states lift restrictions, with case numbers reducing.
Property market economics and how they can be different to the broader economy. The property market is expected to bounce back faster, there is a different set of factors at play when it comes to property values V the economy and job market.
What stimulus will remain after 6 moths, what reform agenda will be rolled out, and what new incentives will be added to drive the economy? Many lender and government initiatives have a timeframe of 6 months, but other incentives and reform will take place, while some of the stimulus will remain for some time.
Who are the likely sellers and buyers in today’s market?
Working out your next property decision! Now is a time for introspection and reflection, ultimately you will fall into one of two camps – people who are happy with their current home and those who wished they were in a different property. We will see many motivated home buyers after this experience who have re-evaluated their lifestyle preferences.
How coronavirus has challenged the mindsets of investors, money management, risk management and lifestyle choices – a great education opportunity for many home owners and investors.
The importance of money management and planning for the future – Covid-19 is a great example of precisely why we have focused two decades on managing risk via your mortgage strategy, despite many of the strategies being counter intuitive during the good times. Good money management never goes out of fashion. You never know when you may require a liquidity bridge.
Reverse engineering your price point via your money goals – Setting Money Goals which should determine your property price, strategy and selection. Merely borrowing the maximum available that the lender will provide, without any thought to your monthly surplus cash flow and available funds buffer, is a great way to get you into trouble, as Covid-19 has amplified.
The Property Planner, Buyer and Professor share what advice they would give their kids/staff/students if they were wondering if they should buy now or wait.
And of course, our ‘gold nuggets’!

We wish you and your families the best of health and say a big thank you to all our health workers during this time.

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Show notes

Confidence is building – more and more people are out and about and more people on the roads. There has been an uptick – SA hasn’t had a new case in over 4 days, NT 17 days. QLD and WA are loosening restrictions, allowing general open for inspections. In WA as long as no more than 10 people. This has the power to eliminate doubt and fear, it shows our government feels positively about how the contagion has been dealt with.
Property market economics can be different to the broader economy – if the broader economy takes longer to recover, that doesn’t mean property will follow suit. The property market can bounce back faster, there is a different set of factors that impact ability to do so. Ultimately, this positivity is putting a floor underneath property values, combined with rate reduction – we won’t see too much of a drop in values.
The unanswered question – what happens after 6 months? Many lender and government initiatives have a timeframe of 6 months – eg: repayment pauses on mortgages. But what if there is a still a need for lender generosity at the end of the 6 months and it is pulled? That may have to be something up for discussion.
Who is likely to be selling their house right now – those for whom the government incentives and lender assistance is not enough, being forced to sell. There are also discretionary sellers on the market, they had an auction campaign or had signed something with the agents prior to the outbreak.
Who are the buyers – people who have job confidence and had a plan this year to buy or decided that conditions are opportune. Those buyers are now in the fortunate scenario of being able to purchase without the pre-Covid-19 heavy competition. People who want to upgrade and first-time buyers, people who want a home. Then people who own multiple properties, who have perhaps accumulated them without much thought and planning.
How do you work out the next property decision? Introspection and reflection during this time, ultimately you will fall into one of two camps – people who are happy where they are and those who wished they were in a different property. Now is the time to get your ducks in a row – start thinking and planning, if I want to buy a home, what should it look like? If you are thinking of investing, what is my price point and location? How do I determine that pathway forward? Now is a great time to take stock and work out the plan of attack.
Evolving mindset – how has coronavirus challenged mindsets to investing, money, risk, lifestyle – this is a shake up for a lot of people who are now asking themselves ‘what do I really want?’ People have been woken up to the need to have ready access to cash – if all your money is invested in bricks and mortar, but you don’t have cash, you will be in serious trouble.
The importance of money management – knowing how much surplus you have each month, how much are you spending from your key buckets – variable expenses, grow account and fun (which has barely been touched in the last few months and maybe helped you realise how much you can actually save).
Planning for the future:
- Buffer yourself by setting up a facility for your maximum borrowing capacity or affordability levels, the funds just sit there in case you need to access it.
- All surplus funds going into an offset account – right now is the perfect example of why we put offset accounts and other mechanisms in place, to access cash and reduce interest.
- Our mortgage loan products are the most flexible in the world, it is what is allowing the government and banks to give us a bridge of liquidity to the other side.
- Many have prioritised the family home, which means they have avoided the heavy leveraging of owning many investment properties.
Money goals drive price point – money goals extend way beyond your own personal place of residence, they take into account your end goals. Go through a process of reverse engineering, “when I turn 45 I want to reduce work and have income via property”. Determine a price point that fits in with your money goals and tolerance for risk. The price point should not be based around borrowing capacity – how does it affect LVR, cash flow, savings left afterwards to sleep well at night, your Money Goals, LMI, structure the debt to optimise deduction. How does your cash flow and savings post different purchase scenarios marry up with your Money Goals? Do some cash flow modelling – home v investment, show the key outcomes of different scenarios – show what happens if I spend $1M on a home and $1M on investment. They come with different rates, borrowing capacity factors and most importantly, how does that impact my decisions in the future?
What advice would we give our kids/staff/students if they could buy now and asked us what we think?
- Cate – If you’re confident you can buy something now with limited competition, or deciding whether to wait it out – you’re taking a bet on the market, that it will soften and you’ll get a better opportunity. If you wait and the market starts to move on and increase, you can be locked out of the area you want or the dwelling type you desire.
- Dave – always make property decisions based on your personal economy, not external. You should have 7 to 10 year time line (if not longer) for holding property, that will ride out any ups and downs in the market. History tells us that now is always the best time to buy – generally speaking, property hasn’t dipped for too long when the market does have a downturn, but if you can hold for the longer-term, it outperforms inflation. If you can comfortably purchase, and motivated to do it, then do it.
- Peter – start with your plan, home or investment, where am I going to buy? Then look at the type of property you will buy. Plan, get the ducks in a row, then execute the plan.

David Johnston – The Property Planner’s Golden nugget: I’m a big believer in learning from history, I have comfort and faith that we will get through this and recover. We’ve recovered in the past and we haven’t had the level of tech and medicine that we have now, we will bounce back. There’s starting to be a bit of history that suggests now we bounce back faster. We have capability to shut down fast and also in the reverse on the way out. One of my perpetual favourite phrases is that ‘necessity is the mother of invention’, we’ll see great inventions coming through. Another one is that history may never repeat itself, but it usually rhymes.

Cate Bakos- The Property Buyer’s Golden nugget: if you’re thinking about jumping into market now, waiting for a sign, waiting for a bell to ring, have a good think about what that bell means to you. At what point is this your signal, rather than waiting for the masses to jump in, determine what gives you confidence, give it a KPI context, so that when the bell rings, you’re jumping in when you should be.