John Lindeman reveals the close correlation between the recent toilet paper stampede and the property market.
Many of us were amazed by the recent scenes of people stampeding to buy toilet paper, and some of us may even have joined the frantic rush to grab a few rolls before supplies ran out.
Supermarkets were left without toilet paper for weeks afterwards and with toilet paper supplies only now slowly returning back to normal, many of us are left wondering “What was all that about?”
After all, the actual need for toilet paper did not rise; the shortage was created purely by massive panic buying.
In statistical terms, this event was a classic “self-fulfilling prophecy”, which is when the prediction itself causes the result. But did you know that exactly the same panic buying events often occur in the property market?
It starts when we hear about certain locations where properties are selling faster than hot cakes. We are urged to be quick, or we’ll miss out.
More and more investors rush in to buy and they actually create the shortage that is being predicted.
Such frantic buying often leads to dramatic price rises, but unless the demand is backed by a genuine need for more dwellings, the shortage quickly turns into a surplus and prices collapse.
While having cupboards full of surplus toilet paper is not a major issue, buying a property on the basis of speculative demand can lead to real problems. Always make sure that any property investing opportunity you are interested in is backed by actual rental or owner occupier demand, and not purely by demand from speculative investors responding to the same messages as you are.
How will post COVID-19 property markets perform?
Our modelling has revealed that the COVID-19 pandemic is likely to result in significant changes to our housing markets, but also that the immediate, or short-term impacts are likely to be very different to the longer-term outcomes.
Areas with short term risk are easy to identify
There are some property markets where buyer demand is falling right now, such as those relying on tourism, accommodation and recreation services. Regional areas relying on pack-packers to pick fruit and vegetable harvests may also suffer some setbacks. On the other hand, supply is also falling in many suburbs as vendors pull their properties from the market, so any price falls are likely to be short lived.
Markets at risk from falling rents are short-term business, holiday, Airbnb and student rental locations. The collapse of these short-term rental markets has forced owners to list them as longer-term rental vacancies, which is leading to a rise in rental vacancies and rents could fall in some locations as a result. This is also likely to be short lived, because when the temporary restrictions on movement and assembly are lifted, these markets will quickly bounce back.
Some suburbs and towns have high growth potential
We expect a general surge in housing demand to occur after the current crisis is over and the restrictions on movement and assembly are lifted. Rental demand will rise as tourism and holiday markets recover and we will experience an influx of migrants from other countries. As a result, many suburbs will experience excellent growth, with buy prices right now at their lowest.