Upon returning to the real estate industry recently after a 3-year career change, one thought going through my mind was that it will take a while to get my head around the local property values again.
However, I soon realised that this wasn’t really the case at all. Prices are pretty much the same as they were 3 years ago. In fact, while there have no doubt been some slight ups and downs in the last 6 years, overall, prices have barely altered since 2010. As an example, this Christmas will mark my family’s 6th year in our North Warrnambool home, which would roughly fit the description of a “median” Warrnambool house – and I reckon it is worth pretty much what we paid for it back in 2010.
Of course, this “flattening out” had to happen. In the year 2000, the median price in Warrnambool was $129,937, while in 2010 it was $320,000. An increase of approximately 250 percent! All the while the average household income rose by approximately 20 percent. Whilst there are other economical factors at play, on this alone it was clear that the growth that had occurred from the late nineties through the early 2000’s was not sustainable.
Coming up to 2010, either a sharp drop/correction/collapse in property prices, or a prolonged flat period, was imminent.
Warrnambool has always been a solid economical performer with several ‘strings to its bow’ – not relying on one industry (like, for example, some of the “boom and bust” mining towns in Western Australia). While agriculture and farming, particularly the dairy industry, is a large economic driver, Warrnambool is also a thriving tourist destination, a substantial regional retail hub, and a large provider and employer in the fields of Healthcare and Social Assistance; Education and Training; Accommodation and Food Services; Construction and Manufacturing.
This being the case, the demand for property in Warrnambool has always been solid, and after 2010 there was no collapse, simply an inevitable lengthy period of time whereby incomes and affordability could catch up to what had been an unprecedented and longer-than-expected property market boom. In other words, people still wanted to buy property in Warrnambool – but could no longer afford to keep on paying the increasing prices, because despite interest rates continuing to decline to all time lows, personal and household incomes were not increasing at anywhere near the same rate as property prices and affordability simply eroded away.
A common myth often spruked by property investment “gurus”, is that property prices double every 7 to 10 years. This can be true in isolation – provided you pick the right 7-10 years! (e.g. 2000-2010), however over the long term, it is a ludicrous statement. Case in point: “In 1890, the average Sydney home price was $1,446 (£723). If property really does double every seven years then, in 2016, the average Sydney home should be worth approximately $380 million!”
What does the immediate future hold?
The short answer: I don’t know. Unfortunately, in 2016, you can’t google property price data for Warrnambool for 2017-2020! Nobody rang a bell in 2009 when the boom was finishing. In fact, I remember at the time about 4-5 years earlier thinking this can’t go on any further, but yet it continued to boom for a few years yet. And no-one rings a bell to let us know when prices are about to go up again either.
One thing that is proven over the long term with regard to property prices both universally and locally, is that while there can be rollercoaster rides of ups and downs, the overall trend over time is clearly upwards, and there’s no doubt the line will be heading back up at some stage in the relatively near future. In fact it has potentially just begun.
September 2016 saw almost record sales for Wilson Real Estate. One month at one real estate office is too small a sample size to go making bold market predictions, however a notable point is that several of those sales were properties that had been “stuck” on the market for long periods of time. Whilst a handful of sales can be a coincidence, history shows that this can be an indicator of upward market price movement.
Another point to note is that Melbourne property prices, which dropped between 2010 and late 2013, have been rapidly rising since then. What we often see is that as the larger metropolitan areas become less affordable, people look to regional locations where they get “more bang for their buck” – and investors get better rental returns. Warrnambool, and indeed the whole south-west Victoria region has certainly been a desirable and welcoming destination for those seeking a “Sea-change”, or “Tree-change”, and many a family who moved from Melbourne out of financial frustration, or simply realising there’s more to life than being slave to an enormous mortgage, now proudly call Warrnambool their home.
Property prices are no different to many other commodities in that they are governed by supply and demand. Could we see the flow-on effect from Melbourne’s booming prices increase demand locally? Very possibly. Could it be that our property market is becoming affordable enough again to lead to an increase in demand, and hence prices? Again, very possibly.
Is it happening right now? Again, very possibly. But there is also still enough negative sentiment out there to suggest proceeding with caution when making your property decisions. Whether buying or selling, regardless of the current market, a good question to always ask yourself is “What is the worst that can happen?”. If you can deal with the worst possible outcome, you can proceed with confidence, then do all you can to ensure that the worst doesn’t happen.
A huge point with regards to buying and selling real estate, is that if you are looking to sell the home in which you live, and buy another to move into, then it actually doesn’t matter what the market is doing. Sell low, buy low, and vice versa. Even if you’ve lost money on your current home, the one you’re buying has been victim of the same marketplace. If the market suddenly rises, then as long as you re-buy into the same market, then the property you buy will also rise in value.
A lot of people say they are going to wait till their home goes up in value before selling. But if you want to move, then why not get out of the home you don’t want, and into the one you do want – and wait for that one to go up in value?
Please note that the above piece is born not out of science or rigorously extensive statistical research, but more gut feeling and an opinion based on years of experience selling real estate in our local market. Please seek independent advice regarding your specific situation. If we can help, either with general advice or information about our services, then feel free to contact us any time.
Written by Lucas Wilson
Partner – Wilson Real Estate