Know your market in 2022

After an extraordinary 2021 in property, it’s not hard to imagine we’re all bulletproof investors heading into this year.

There are signs momentum in the market is ramping up once more. This might seem like a great thing on the surface, but there’s something different about 2022 which requires extra caution around your investment decisions.

In fact, get this year wrong and you could be staring down the barrel of disappointment as a lost opportunity passes by. Worse still, a costly expensive mistake in 2022 could threaten your long-term financial future.

Here’s the danger that lurks and how you can avoid the pitfall.

History repeats

In case you’ve been living under a rock in a dark cave on a planet far, far away, there is one historic truism when it comes to Australian property prices… they are cyclical.

That said, their cycle is not like clockwork. There’s no steady rise in values followed by a soft plateau that cascades into a gentle drop and slow bottoming out all consistently regulated by a seven-year cycle. No, Aussie real estate prices are more staccato when it comes to their movements.

What tends to happen in most markets is that after a stage of stagnation, values will rocket up for an indeterminant period before slowing fairly abruptly. They then stay inactive or drop to some degree. They will then coast for a stretch at a sort of equilibrium before some trigger will start the mad rush once more. And this happens over a period of whatever years, depending on where you’ve invested.

Brisbane provides a great example

The median house price in Brisbane in 2000 was around $170,000. In 2010 it was about $450,000. Not bad hey? More than doubled in a decade!

But the moves weren’t all smooth.

During the late 1990s property remained boringly sluggish. Then in 2001, the pace picked up taking momentum into 2002 when the median reached around $210,000. Come 2002’s end, there was expectation 2003 would soften, but it didn’t. It was an extraordinary run of double-digit growth that saw the median reach approximately $300,000 by year’s end. It slowed down again in 2004 and 2005 before a picking up in 2006 and 2007, but that ended with the GFC in 2008 and stagnation by 2010.

You get the picture. Price movements over short periods are unpredictable.

So, what does this history teach us about 2022 and how to avoid costly mistakes?

The current state of play

I’m on record saying I believe 2022 should be treated with cautious optimism. We have excellent momentum already taking us into this… but this hides a danger for many investors.

You see, 2021 was a very forgiving year for property owners. No matter what you purchased at the start of the year, you would have picked up equity by the end. Main road position, secondary quality apartment… doesn’t matter. If you didn’t pay above market value at the time, you would have found yourself ahead 12 months later.

While this is great, it can instil a false sense of security in the average investor. Suddenly everyone’s an expert at selecting terrific assets with upside potential. It makes investment look easy.

But the worry is that some will now overextend themselves with more borrowings, buy whatever they can and be mortgaged to the hilt all while hoping the good times keep rolling.

This is a very dangerous path to tread.

Why this year is different?

The various drivers of property prices in 2022 are going to be more complex and unpredictable than last year’s. There will be myriad effects directing values to move one way or another. Among them are potential interest rate rises, a federal election, looming prudential regulation, and diminishing affordability.

And then there’s the pandemic and border reopenings to contend with, while economic and consumer confidence is also wavering one way and then the other.

On balance, I believe we’re still in for a year of positive price growth, but it won’t be across the board and all-forgiving.

My big call is that we’re in for differing performance across property types, price points and locations. You will no longer be able to buy a secondary investment and enjoy unfettered gains.

How to save yourself thousands

As I said, location and asset selection will be crucial. So, unless you’re working day-in, day-out in markets, I don’t believe you’ll have the skills or experience to choose the best possible investments for your long-term security. In short, anyone who isn’t using an independent qualified property advisor this year is at risk.

A qualified professional will be adept at sorting the wheat from the chaff and identifying the right investment for your portfolio and strategy. In 2022, it will be more important than ever to get this right. The downside risk this year is too great to take chances with substandard assets.