COVID-19 Vs Macedon Ranges Property Market

We’ve recently been looking at some data regarding the property market and what to expect as a result of COVID-19.  We’re particularly interested in our local area – the Macedon Ranges.

Can the Macedon Ranges property market withstand a down turn?

It may still be too early in the piece to answer this question with any degree of certainty, as there are a couple of scenarios that could still play out. We know that the equity markets have already experienced several sudden and severe drops, not unlike what we’ve seen in the past with events like the GFC. However, there are a range of factors that will determine how we come out the other side of COVID-19 – will we be pushed into recession? Will we experience an economic depression, something many Australian’s have never experienced in their lifetime? How will the Government respond?

The answers to these questions will give us a much clearer idea of what to expect the property market to do.

However, conclusions we could draw from the data we’ve been looking at is the way the Macedon Ranges property market has reacted in the past. In the 3 years after our last serious recession (1990 – 1991), the Macedon Ranges property market returned –1.36% per year on average. Compare this to the GFC, which was (arguably) more akin to the nature of the market shock we’re currently experiencing, in which the market returned an average of 11.79% per year for the following 3 years.

So, while we have a slight indication from the past as to how the market may react depending on how COVID-19 economically unfolds, there are also a huge range of factors (including past experience with economic downturns, the psychological and emotional state of investors, government intervention and speed of response, etc.) that are not comparable at all to 1990-1991 or 2008.

Is now a good time to buy property in the Macedon Ranges?

As financial advisers, the number one thing we look at first before considering any kind of large investment is your personal financial position. Regardless of the state of the market and the opportunities that may exist, if you’re not in an appropriate position to make the purchase then it shouldn’t even be considered, and you should instead work on getting into a financial position that will allow you to take advantage of an investment opportunity when you are ready.

That said, if you are one of the fortunate ones to retain a strong, steady income throughout COVID-19, have an appropriate level of savings and are looking to purchase a property either to live in or as an investment, then now (or more likely, in the next couple of months) may be a really good time to do so.

In relation to specifically the Macedon Ranges property market, we believe that there could be some great buys. This is backed up by the data we have access to, which shows recent, steady growth of properties in the Macedon Ranges (8.29% per year over the past 5 years). Compare this to the Moonee Valley area, for example, a well-known and popular suburban region, which has achieved 5.42% per year over the past 5 years.

We believe that what this data is indicating is something that we’ve seen time and time again and often from clients of ours that have recently moved to the area, which is an emerging trend of the ‘tree change’. It’s no longer as important as it once was to live as close to the CBD as possible, as it’s becoming more common to work from home (especially now) and transport is becoming more abundant and efficient.  As people follow this trend, an area that has always had a level of prestige attached to it (such as the Macedon Ranges) is a popular choice for many. This rise in demand naturally will cause prices to rise in popular areas.

As always, we encourage the mindset of investing for the long-term. By no means do we believe that you should be making a purchase so large as a house solely because experts predict the market to drop due to COVID-19. However, if you were planning on making such a purchase anyway, it may be a golden opportunity to secure a quality, long-term investment at a bit of a discount.

What will property prices do?

Well we don’t have a crystal ball, but we take a look at history and refer back to our last recession. 

Firstly for those of you that don’t know the term “recession”, it’s when an economy has two consecutive quarters (2, 3-month periods) of decline.  This is where a country’s Gross Domestic Product (GDP) declines.

Australia’s last recession over 28 years ago, was in 1990/1991.  To summarise some key points during the recession:

1.In 1991 the Australia economy (GDP) fell 1.3% in the March quarter and 0.1% in the June quarter. 

2.Unemployment during this recession period rose from 5.8% in December 1989 to as high as 11.2% in December 1992.  It then took 11 years to get the unemployment rate back under 6%.

3.Interest rates between 1990-1991 were 16% and by 1993 they were 8.75%.

4.Macedon Ranges median house price dropped 13% between 1990 to 1992. 

5.The Moonee Valley City area median house price dropped 3.5% between 1990 to 1992.

Going by history and looking at key indictors it could seem we are heading down the same pathway.  However we have some differences at the moment:

1.The amount of money the Government is injecting into the economy, about $15 billion plus.

2.Australian interest rates are at record lows

3.Inflation is low

4.Unemployment was historically low

5.Federal budget was balanced

6.Financial markets have started to recover

7.Residential property is in demand

8.Strong population growth, driven by migration

In summary a main factor that can influence property markets is the performance of the job market.  However in contrary to that you have to remember local property markets do have their own supply and demand drivers.  As a result the prices of property will be determined by these drivers.  As we mentioned earlier the Macedon Ranges has experienced a demand in the past few years. But will this be sustained?

Please don’t hesitate to call, email or message us to talk through any questions you have or to understand if you are in a position to purchase a property. Also we love to hear feedback or know about topics you would like us to cover.

7Wealth Pty Ltd ABN 44 609 210 246, is an Authorised Representative of AMP Financial Planning Pty Limited ABN 89 051 208 327 Australian Financial Services Licence 232706 and Australian Credit Licence 232706
This blog contains information that is general in nature. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs before making any decisions based on this information. If you decide to purchase or vary a financial product, your financial adviser, and other companies within the AMP Group may receive fees and other benefits. The fees will be a dollar amount and/ or a percentage of either the premium you pay or the value of your investment. Please contact us if you want more information.

Data used in this blog was from the Vic Gov Property and Titles Office.

April 16, 2020