This year will be a boom year – for scaremongering

I predict that this is going to be a boom year! 

But before you start wondering what I’m “on” to make a comment like that, let me explain: I believe this is going to be a boom year for fright. 

There is no shortage of scary stuff in the media. Things like "House prices are unaffordable!"; "Property prices will crash"; "Europe’s financial system will fall apart”; “Which economy will topple next?”; “It’s China’s turn for a property bubble”; “Will America go into recession again?"; "Britney Spears does it again!" 

Every year is a boom year
Of course just about every year is a boom year for fright.

As far back as I can remember there have always been scary stories in the media.

And looking back over the years I have invested through many property slowdowns, share market crashes, periods of double-digit interest rates and periods when people thought housing was unaffordable or would never go up in value again. Yet despite all of this the value of my properties keeps doubling, allowing me to refinance and buy even more properties.

Like I said, there’s always bad news in the media. I remember in the late 1980s the cry was, "Don't buy houses... they can't go up in value. Your kids will never be able to afford them." Then there were similar headlines in late 2003 and predictions of our property markets collapsing in 2008.

There always seemed to be scary headlines about a grim future that could have given me plenty of reasons not to invest in property. Before the global warming crisis there was an over-population crisis with politicians, environmentalist and economists predicting massive food shortages, rioting in the streets and an impending collapse of society.

I even recall a panic about global cooling.

Of course, the media gets more mileage out of this type of story. Journalists find it hard to get readers’ interest reporting on the unemployment rate being well below the long-term average, an economy that is the envy of most nations, a resources boom the likes of which we haven’t seen in a century and 19 years of continuous economic growth for Australia. This is boring.

Take a long-term view
As a property investor you need to take a long-term view and refuse to be scared by the next boogey man jumping out from behind the bushes.

To be successful you need to step back and take a big-picture view.

The fact is, this week somebody's getting married, somebody's looking forward to having a baby, somebody's getting promoted, somebody's getting transferred, somebody's getting divorced. A lot of people are happening to get rich.

This year more than 150,000 new households will be formed in Australia and they are all going to have to live somewhere. Those who can’t afford to buy will have to rent.

This means the long-term fundamentals – in fact the medium-term fundamentals – for our property markets are very sound. And if you take a long-term perspective, you'll be able to spot and act on opportunities that arise this year, as many potential home buyers and investors get scared by this boom year for fright.

Is this a year of opportunity?
This could well be a year of opportunities for property investors who are willing and able to see the big picture.

But remember: what you look for is what you see.

If you look for bad news you’ll find it. On the other hand if you look for opportunities, you will find them. And boy, are there opportunities out there at present.

What determines property prices?
While many factors, including supply and demand, affordability, interest rates and the economy, affect property values, I have observed:

• Short-term property price movements (one to three years) are usually determined by market sentiment (which is currently very low)
• Medium- to long-term property price movements are determined by two main factors: population growth and the wealth of the nation.

Despite what some people would like, strong population growth in Australia is a given (to replace our ageing baby boomers) and as a matter of fact so is our increasing wealth. I don’t think that anyone would argue that as a nation Australia will become wealthier over the next 15 years.

Australia is well positioned to benefit from the growth of Asia, which represents 50% of the world’s population. We have vast resources that will be required by our growing neighbours and we’re at the beginning of the mother of all resources booms.

However, rising property prices, decreasing affordability, changing sentiment and fluctuating supply were a volatile mix that caused our property markets to slump. And now we are in a buyers’ market.

But the funny thing is that buyers don’t buy in a buyers’ market – yet smart investors do! They recognise that the current market presents them with a smorgasbord of opportunities and they step up and take advantage of them.

I’ve found that when there’s lots of bad news people believe times are going to be tough forever, just like when things are good people forget the bad times ever existed and think that things are going to remain good forever.

Neither case is true!

In fact during booms people are most confident when they should probably be the least confident, as things can’t continue travelling at breakneck speed and above average rates of growth. Similarly, during the market slowdowns, things eventually turn around. Ironically, people have the least confidence when it’s more likely that things are going to improve – that is, when markets are near their lowest point.

Now is the right time to educate yourself and get set to take advantage of the opportunities that this stage of the cycle presents.

Yes, things have slowed, and property prices have fallen over the past 18 months. And they will continue to fall in some areas. But this is a normal part of the ups and downs of the property cycle. As always, while some people worry about the bad news and sit on the sidelines, astute investors will set themselves up for the next stage of the property cycle by purchasing well-located real estate.

Michael Yardney is the director of Metropole Property Investment Strategists , a best-selling author and one of Australia's leading experts in wealth creation through property. He also writes the Property Investment Update blog.