Traditionally Spring is a busy time for the property market and even though we are in a recession this year will be no different. In this fortnights update we talk about the start of the recovery in property prices and the new fundamental insolvency changes for small businesses to trade out of this recession and stay in the game.
Springtime
The property market is heating up.
As a seasonably busy period for property sales Spring is closely watched to get a feel for how the market is moving, and by the first signs it looks like it is moving on up.
While it was largely thought the property market would see a large decline in prices I argued in one of these updates in June that there were five forces fighting for a boom in property prices and even went so far to say that in 2021 property prices would reach or exceed previous record highs.
This was not a common prediction while we were all still in lockdown and it was interesting to have robust discussions with people about this view.
Nonetheless more mainstream and professional economists are starting to make similar predictions.
Just this week Westpac came out with a new forecast for house prices saying they would be up a whopping 15% by late 2021.
Last year the Spring season was rather subdued as the momentum from rate cuts diminished and the weight of the royal commission and responsible lending laws dragged on, but there was definitely demand form buyers (which has not ceased).
We also saw strong clearance rates last year close to and around seventy percent consistently which we are also seeing now.
The clarence rates were a good datapoint to show activity in the market, and if you read these updates regularly you will know I say that increased activity leads to increased prices. This is true especially for property but also most other asset classes.
So, when strong buying and selling activity is happening, as indicated by clearance rates, we start to see prices rise.
To be fair last year the low level of listings kept prices (almost artificially) buoyant which is remarkably similar to this year and does distort the data.
However, we have been seeing quite a number of record price sales for the upper end of the market and this trend could continue and flow into the middle market as well.
But what could we expect to see this Spring market that might make it different?
The sale of empty properties.
An incredibly unique feature of this year’s busy season is that leading up to it almost a million people had their home loans on repayment deferrals because of the virus crisis, and a large portion of them were investors.
This means that many (investor) property owners might see prices staying strong and try to sell because they cannot or do not want to continue to make repayments on their loans when the repayment holiday ends.
But there will not be the so called “cliff” at the end of this month as many of these repayment holidays finish their six-month term and thousands of forced sales by banks. There will be a rise in the number of listings after this time, just not a tidal wave enough to drown the market in supply.
In reality, even with the extra supply of empty apartments there is so many active buyers demand would likely soak it all up anyway.
Further, the bank regulator has started to provide guidance on how banks should manage this transition of people coming off repayments and they will do everything possible to make sure it is a smooth transition.
It would be unbelievably bad for the banks to foreclose on people’s properties.
It will destroy their reputation even more so after the royal commission but more importantly it would destroy their profits. Self interest is a strong motivator.
It is highly likely that property prices already reached low in this cycle during this virus recession and the chance to buy at the lowest point has passed.
But opportunity still exists.
When we look back over the virus crisis and the COVID era in the context of residential property prices, it will probably show that the lowest level in prices was in the winter of 2020.
We might also see in hindsight that property prices will be up 20% over the next two to three years, which is an entirely probable scenario, so even buying now is opportune.
Right now Skyward Financial is actively working with clients to get pre-approvals so they can set their budgets and confidently go house hunting, so if you or someone you know is sitting on the fence Let’s Talk.
Solving insolvency for small business
Under new regulations and for the first time ever in Australia a small business will have a chance to trade out of insolvency.
This is similar to laws in America and allows a small business or sole trader, who owes less than $1 million to creditors, to continue to run their business and make a real effort to trade out of insolvency.
This is a drastic and fundamental change to insolvency laws and will have meaningful change to the way a small business is rescued from collapse.
A business owner will be given twenty days to draw up a plan and offer a deal to creditors. They need to pay staff all entitlements and the deal needs to accepted by creditors, but it is likely in many scenarios they would accept the offer because if a business is forced into liquidation a creditor would only see a very small return of money and would likely see more if the business got back to trading.
It is a win for the business and a win for the creditor.
Through this new policy the treasurer and government are aiming to save tens of thousands of jobs.
According to official figures there are over 900,000 micro businesses turning over less than $2 million a year, a further 82,000 businesses turning over less than $250 million and a 2,000 more with revenue over that figure all using JobKeeper.
There are a lot of business on support, and the government does not want them all collapsing at the same time.
This new law is also on top of COVID induced measures from earlier in the year protecting a small business from being put into forced receivership by creditors.
That change alone has seen administrations and insolvencies about half of what they were last year and what they would be in a “normal” environment.
Sadly, many businesses will collapse this is just offering a chance to adapt to the new normal and get back to work.
Change is the only constant.