July 1, 2022

We've left the clifftop

We’ve left the clifftop, we have our air goggles on and we’re looking for softer landings or messages from God or some soothing words like “It will be ok.” We are in a market that has been falling since Cup Day of 2021 (you’ll know if you’re a reader of Marketnews) and according to many agents, we’re now into the steeper bits of the cycle.

 

So, will you be Ok?

 

Well yeah. You’ll probably be OK – but rather than just puff out our chests and say that – let’s understand a little more about what we’re in.

 

We are in a property and debt cycle, but we’re always in a property and debt cycle because we have property, and we have debt. The cycle has little up bits and little down bits, but over time, overall, it’s been up, up and up since us serfs overran a few Kings and Queens a long time ago. Why? Population growth, land control instincts + human desires.

Let’s talk about what happens during and after the down bits of property and debt cycles.

 

  • Why is everybody scared to talk about the downward bits? There is just as much uncertainty in the upward bits and you can’t have one without the other, it’s completely normal and survivable for most AND both parts of the cycle have advantages and disadvantages for buyers and sellers. Down is not scary, it’s just not as much fun.

 

  • Cycles are only scary if you don’t really understand what is going on OR you cannot manage your way through them mentally or financially.

 

  • We know many will think its Mal spin – but down can set yourself up for life! It’s a good time to buy when…….you really really want it and it’s there, it’s not a good time to buy when you don’t really really want it and it’s not there. This is true but let’s move on.
  • So, who knows for sure exactly what part of the cycle we’re in? We were supposedly in freefall in May 2020, and yet we were actually stabilizing. We were supposedly gone for all money and forever in the GFC, but thanks to our China boom, we were cushioned and the “downer” lasted less than 9 months at Top End Inner Melbourne.

 

  • We are here now in this part of the cycle, in part, because the pandemic forced governments to splash money around to get as many of us through the crap as possible AND as night follows day inflation arrived, because money in the community was up (debt and handouts) and production was down (lockdown) AND whilst inflation has some real good for property owners with manageable debt, it is really bad for the economy if left unchecked (another story) and so the people’s bank – the Reserve Bank is attacking the inflation problem with increasing interest rates. Increased interest rates is not so good as we have to pay more for our debt – which is like rewiring your home – costs you money but adds no enjoyment in the short term as you can’t spend it on OS trips. We are renovating our economy eg belt tightening for a while, forcing us to work harder – because as humans many of us want the next good times. As our productivity regenerates and increases relative to money in the community then inflation deflates and good times again. Unfortunately for most of us, we can’t enjoy good until we get through this not so good, or another way: everyday of this not so good (if we collectively work smart) is a day closer to good times again………aaaah pina coladas in patagonia. All of this is a chunk of why we are somewhere in a down or a mini down part of a cycle.

 

  • Before we get to Melbourne specifics, we recommend you watch the Ray Dalio video on how the economic machine works and how the Inner Melbourne Top End market actually cycles – especially if you are not across what debt cycles are. Can we recommend that you don’t just watch the first 5 mins only – watch the whole lot and maybe watch it again. We’ve recommended it multiple times including May 2018 – Life is Good article at another Melbourne cycle bottom – which we’re now 30% or even 50% above AND …. • We are now at double $ for A-graders from when Ray Dalio first produced this 2013 Youtube.
  • If you sort of understand what is happening (and none of us get it all) and you don’t go into a state of denial and panic, then on the balance of probabilities, you’ll be ok and you’ll end up with better results/outcomes, than if you make knee-jerk decisions that bring you to a full stop or you push on blindly. Of course, that is all predicated on A-Grade buying/selling.

 

  • And even though it all seems about $, it’s not all about money. Children don’t stop growing for 5 years whilst you recalibrate your stomach for risk. In 8-10 years (a full cycle) your kids have gone from babies to teenagers or from teenagers to left home (ok maybe still here but you’re hoping their leaving). • Children need family homes, not Mal’s or Ray’s or Bankers’ economic lectures.

 

  • So yes, the talk of the markets, for a while, will no longer be as interesting like the latest finishes from Europe, nor the great shower reveal…. it will now be a bit boring about price, price and more price …… and for some buyers and sellers the price concepts of overpaying and what’ll my friends say, will overwhelm to the point of action-freeze. • The one thing we can say with conviction is the down bits of a cycle is not going to kill you – life goes on BUT yes, they are basically less fun than the up bits.

 

  • Conversely, with a long-term view, MAY 2022 will be life minutia with a bit of soon forgotten stress. • A-Grader: 5-10% down now v 50-100% gain later + happy families.
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Welcome to the Marketnews pre-game for 2022’s second buy sell season – the MAY 100 Auction Test begins next week May 14 with Ducks v Volcanoes – it promises to be a lot interest for the spectators and one of triumphs and tribulations for the players.

 

SELLERS: which side of the fence will you land – sell or stale?

 

BUYERS: will you hold your nerve or lose your bottle?

 

AGENTS: Who’s hot and who’s not!

 

It’s a buyers’ market? Mmmmm is it? It’s not really, even though it is – the conundrum – fewer buyers have to be buying for it to be a buyers’ market and as soon as more buyers start buying, it ceases to be a buyers’ market. Go figure hey!

 

Anyway, there will be winners and there will be losers and almost nothing has to do with price as the lead reason, even though price is all the talk at the coalface, probably for the rest of 2022.

 

Yep, it’s no longer flow and space and finishes – it’s now price, price and more price.

 

Winners

  • Trade Up Buyers – who will jump 2 levels and hold on like billy-o till they breathe again.
  • Experienced long term no bullshit agents – who smart sellers will gravitate to
  • Sellers of A-Graders who are patient, who follow process, who make good decisions. Yes you may not get as much as Lockdown but you will get a lot more than if you put your blinkers on and abrogate yourself from good decision making.
  • Those that are basically happy and don’t sell.
  • Brave buyers who can manage their emotion (and their banks)
  • Those with buffers and buffer strategies.

 

Losers, Double Losers and Triple Losers

………….well let’s see

 

Whatever happens May 2022 will be a mini watershed for our markets – and it will set our Winter and possibly Spring direction – falling or flattening or an unlikely rise?

 

Interest rates up and election confidence down are into the mix and their presence will make the market nervousness more discussed and therefore more pronounced.

 

It’s going to be an exciting ball-burster public street game, Season 2 2022 – May Market.

 

Strap those air googles on, listen for the messages from God and keep an eye peeled for a soft landing because BANG……… next week is the start of the 100 Auction Test with Ducks v Volcanoes.

MARKET SCOREBOARD

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