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Turbulence Ahead

Veteran international investor John Corey comments

Back when people could fly any time they felt like it, you would occasionally hear a warning. The pilot would use the overhead speakers to warn that turbulence is ahead. That everyone needs to return to their seats and buckle-up. The plane and the crew could handle the expected turbulence if the passengers prepared themselves.

About a year ago, people predicted the first lockdown would wipe out jobs, loan defaults would spike, and house prices would fall. The speculation made sense if people were not able to go to work. Even with some early announcements to help cushion the turbulence, savvy investors expected deals ‘to stack’ later in 2020 after prices had dropped. Lots of things have happened since March last year, and yet house prices have spiked up rather than down. Some niches or specific price bands or locations might have shown a fall, yet the average is clearly up.

When will we learn that predicting the future is a flawed model for investors? Pilots know what is coming because they receive reports from other pilots already in the turbulence. The pilots are not speculating or predicting the future.

I dislike house price predictions as they are predictions for a market, a region or some other slice of the marketplace and none of us ever 'buy the market'.

We operate on a deal by deal basis - one seller, one buyer and one property for most transactions. Even the significant funds with billions at their disposal do not buy a whole market — more substantial transactions, yet no fund can buy and sell the market.

I do agree that it is well worth looking at likely trends while staying away from predictions. People can view the retail sector and see a massive shift in buying patterns driven by Covid-19. We can talk about offices going through a change given social distancing rules in the workplace. Let's agree that people are fundamentally social beings, so gathering for work or pleasure is core to human nature. How we can fulfil the desire for social engagement when there is a health risk is a current challenge. Most will pause and wait it out, given they feel there is light at the end of the isolation tunnel.

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