Have We Hit Rock Bottom?
Despite the fact that COVID-19 has driven us into a financial crisis, many Australians are once again open to buying and investing after the initial shock on consumer confidence.
Most investors are wondering whether now is a good time to invest or if the most opportune time to buy has been missed. Depending on whether you are looking at investing in shares or real estate, it is important to keep in mind that these markets have their differences and they move at their own pace. Regardless of the differences of each market, the question that the majority of new and seasoned investors are asking is - have we hit rock bottom of this financial crisis? It is important to remember that there are a plethora of media publications being released that claim to be expert opinions. As always, we recommend being very discerning of where you get your information and advice from.
We compared the performance of the share market and the real estate market during this unprecedented time, while also providing our outlook on where we believe both markets are heading.
Shares
It is evident from data across the world that for the past 2 weeks, the share market has been rallying, meaning it has begun to climb upwards once again. This rallying is a result of the containment of COVID-19 through widespread testing, quarantines, social isolation and social distancing world-wide. The chart below outlines the Dow Jones Industrial Average over the past 6 months and shows a major trough was hit on the 23rd of March. Since then, there has been a slow and slight incline.
Has the share market already hit rock bottom? Someone looking to invest in shares, should I put my money into the market now? Our opinion is that the share market bottomed out just over 2 weeks ago and that would have been the ideal time to invest. Now, as we can see from the table above and due to the fact the virus has begun to be contained, market values are slowly beginning to rise again.
Real Estate
As aforementioned, in comparison to shares, real estate is a different ball-game.
The reality is that the virus really hasn't affected the property market yet, other than dampening consumer confidence for the time being. It has been mentioned in the media that the market is going to go backwards 9 to 10 per cent, but what sort of real estate are these so-called experts talking about? And where are they getting their information from? There are also predictions that as consumer confidence has begun to increase, the property market may bypass the entire crisis all together. But what exactly is the driving factor behind why the property market may not be majorly impacted by the virus?
For real estate to go through a huge downturn, people need to be forced into selling. At this point, people are not being forced into selling as the major banks are giving customers a six-month lead way on their mortgages. On top of that, many people will not be forced into selling due to the support of the Governments stimulus packages. The fact that the virus has begun to be contained and that the rate of infection is slowing down will also lead to more people going back to work. The state of emergency that we are now in was due to expire on the 13th of April but was extended and is expected to expire at midnight on May 11. So until then, we won't have a very clear understanding of what is going on and what is likely to unfold.
Furthermore, property developers around the country have not been offering rebates or incentives because the market is still going strong. One of the biggest factors is that interest rates are so cheap at the moment, and as consumer confidence lifts, banks will be lending money out at such an affordable rate. When confidence does increase, it is going to be an ideal time for people to buy residential real estate, investment properties, or commercial real estate for that matter. Our opinion is that the growth over the next 4 to 5 months will be slow, and may even drop 3 to 4 per cent, but it will quickly bounce back. Many investors are preparing for the boom that is ahead of us - a wise move indeed.
Is there going to be growth similar to what we saw in previous quarters? Unfortunately, the answer to that question for the moment is no.
If you are an investor that is looking to enter the property market, we believe that now is the time to do so. With developers open to moving stock and with some people wanting to sell their homes, there are some exceptional deals available at this point in time. If we wait this period out, real estate will rise back up to premium prices and we will have missed this unique buying opportunity.