Summary: Podcast Transcript Intro: Welcome to the monthly podcast of Australian Property Investor, Australia’s most trusted and widely-read property investment magazine. For information on how to subscribe to either our print or online magazine, as well as other great property investing information, please visit our website, www.apimagazine.com.au Kieran Clair (KC): Hi, listeners and welcome to this month’s podcast. I’m Kieran Clair, journalist with API Magazine. And today we’re talking about some knowledge almost all owners want in their investment arsenal – the best ways to preserve wealth in a falling market. Property markets run through the cyclical highs and lows and along with the art of knowing when to buy and sell, investors need to know how to ride out the bad times and not just enjoy the good. To help us understand what is happening to our portfolios during these market slowdowns, and to give us some strategies on how to cope financially, we’re joined by author and investor, Steve McKnight. His latest book is called From 0 To Financial Freedom. Hi Steve. Steve McKnight (SM): G’day, Kieran and hello to everyone listening. KC: Firstly, what signs should investors look for to indicate their particular market of interest is stalling? SM: Well typically the number of properties that are for sale is a great indication and the reason for that is that it speaks to something in the property market called absorption. So, basically, there is always properties coming on the market and people buying those properties, whether they’re homeowners or investors, but if we enter a situation where more properties are coming on the market for sale than are being absorbed by sellers, then that’s the first sign that prices are going to start to drift because economic theory has when supply is greater than demand, the price will fall. So, normally in a booming market you have more buyers than sellers competing so that pushes price up, as the market shifts though and more properties are available for sale, all of a sudden now the sellers hold the cards and can negotiate the price down because there are more buyers. So, that’s why I say that’s the biggest telltale sign of what’s happening in the market at the moment is the amount of properties that are coming on the market for sale relative to the number of properties that are being sold and being able to determine that is really a matter of going and talking to real estate agents and seeing if they can supply any data because it’s all tracked. KC: Interesting, and how are you reading the markets in the Australia right now, Steve, given the mixed bag we’ve had in 2012? SM: The driver of real estate or the drivers to start off with are really, there are two of them. The first one is the economic fundamentals of what’s going on and then, secondly, the emotional fundamentals of what’s going on. Now, the economic fundamentals of what’s going on are quite strong at the moment, particularly with interest rates as low as they are. You would, if you separated out the emotional side of stuff for a second here, the fact that interest rates are so low should be bringing people who would otherwise rent into the owner market and people who would otherwise invest, given that the cost of capital is so cheap compared with where interest rates in Australia have been, you would think it would bring them out of the woodwork as well - but it’s not and the question we have to ask ourselves is why not and then that speaks to the emotional side of things because people, at the moment, even though interest rates are low, are afraid of their financial futures and indeed glass-half-empty pessimists rather than half-full optimists, and so they’re not ready to commit to a significant financial investment such as a piece of real estate and borrow tens if not hundreds of thousands of dollars to do so. But I believe this confidence shortfall is a temporary thing.
