Feb 11, 2021
Here’s how you spot a real estate charlatan, someone who likes
to present themselves as a real estate expert but who in reality
knows nothing worth hearing …
1. They speak of Australia as a single property market; and/or
2. They attribute price growth to “record low interest rates”
Mostly these pretenders are economists. I would remind you of a
much-quoted definition of an economist: Someone who can tell you
tomorrow why their predictions yesterday didn’t come true
today.
We have learnt over the years, but particularly in 2020, that the
bigger the name and the media profile, the worse they are at
analysing residential real estate and forecasting outcomes.
Cast your minds back to the predictions in March/April 2020 from
senior economists employed by the major banks, big institutions
like AMP and even those working for specialist real estate research
entities. And then again later in the year when the so-called
September Cliff was proclaimed an impending disaster.
There was a chorus of predictions of a long recession, with
double-digit unemployment and real estate values collapsing. How
spectacularly wrong they were. Only the specialist property
analysts got it right.
But the appalling track record of economists with real estate
analysis stretches back years and includes the alarmist predictions
about property prices in the wake of the GFC – also proven to be
spectacularly wrong.
It’s remarkable that media continues to give these charlatans
airplay. Credibility, it seems, is optional, so long as you have
“economist” in your title. So the nation’s gaggle of chattering
economists has been compelled to admit they got it wrong in 2020
and most of them are now forecasting big price growth this year.
You will note that what they are predicting is already happening,
highlighting another characteristic of this bloated and overblown
profession: predicting the recent past.
And how do they explain the gathering boom? Record low interest
rates!
God help us. The lack of expertise among the talking heads who
clutter up the airways with their simplistic analysis is quite
breathtaking.
As we all know, we’ve had ultra-low interest rates for years. Very
little has changed in that regard to explain the recent uplift in
sales activity. When Sydney and Melbourne were having their real
estate boom from 2013 to 2017-ish, economists generally explained
the price rises with “record low interest rates”. They had no
response to the obvious question at the time: how come prices in
Perth and Darwin were falling, while Canberra, Brisbane and
Adelaide were stagnating?
The “low interest rates = property boom” theory also fails to
explain why the last two genuine nationwide property booms, in the
late 1980s and in the early years of this century, both occurred
during periods of very high and rising interest rates.
My view, strongly, is that record low interest rates do not
explain what’s happening in real estate across most of
Australia.
The growth is being fueled by multiple factors, including …
A stronger-than-expected economy
Lower-than-predicted unemployment
State and federal stimulus measures
The build-up of savings during the pandemic period
People in lockdown reviewing their life choices
Ultra-low vacancies, putting upward pressures on rents and
prices
Pent-up demand, leading to rising sales activity
Low listings levels, relative to rising buyer demand
The Exodus to Affordable Lifestyle trend, which is hugely
influential
Increased spending on major new infrastructure
The revival of the resources sector
The return of ex-pat Australians in large numbers
The belated entry of investors to compete with
owner-occupiers
Perceptions about the safety and solidity of bricks &
mortar in times of uncertainty
The growing prevalence of e-commerce and its impact on industrial
property, which
has repercussions for residential demand
Access to low-cost finance
And you’ll notice that I mention low interest rates as just one of
16 different factors – and I mention it last and definitely
least.