Did 60 Minutes hit the nail on the head when they said our housing market is falling off the edge of a cliff? Or do they have it completely wrong? Well, let's take a closer look.
Since the 60 minutes story aired 2 weeks ago, we have had many clients call in and question the views expressed in this scary story! Like many property educators, we think it would be fitting to discuss the whole story, not just an edited one sided alarmist version which we viewed on this ratings driven program.
Doom & Gloom
First, let's outline a fact that most educated property investors understand - In Australia we don't have one single property market, we have many. As discussed in our previous articles, different regions of our great nation experience different property cycles at various times. A prime example of this, is 4 years ago when prices were drastically dropping in WA, Sydney prices were on their way to a boom. Too often we see reporters jumping to conclusions and summarising the whole country's property sector off what's happening in Sydney.
It's no secret that many areas of Australia have slowed down and many suburbs throughout Sydney and some parts of Melbourne have dropped in value. But hey, everyone knew it was going to slow down! 18 months ago we told investors to hold off on investing in Sydney because, in most areas, it was simply too expensive and it had nowhere to go but down. The same is happening in some overpriced areas of Melbourne, houses that were $1.2 million are now selling at $1.1 or $1 million. Yet we are still seeing many areas that are recording 9% to 12% growth again this year so far, some as high as 31%.
A Calculated Slowdown
What you are seeing is a slowdown in the market, not an economic downturn. Over 18 months ago, the banks started putting the brakes on the investment market because of unsustainable rapid price increases that were predominately coming out of Sydney. As of June 2017 dwelling prices in Sydney started to slow and eventually started to drop back down to more realistic levels. Earlier in March this year, some lenders announced they were easing the brakes off because the restrictions put on investment lending "had done it's job".
However, since then, most banks have continued to put restrictions on investment lending, for example - making it harder to acquire interest only loans. Why? to prevent people from exposing themselves to a short term slowdown in the hope of long term capital growth. What we saw happen in Sydney over the last few years was one of the biggest property booms in our history, but (as we all knew) it couldn't sustain the growth at that rate, and therefore it had to slow down. The powers that be made sure of that.
Why did 60 minutes predict a 40% drop?
Well we need to point out that this was an edited opinion of Martin North (a data scientist), who later came out and publicly stated that his opinion was presented in an unbalanced context and that it was a representation of a worst case scenario. How many people have you heard over the last 4 years say our property market was going to burst? Many people have a worst case scenario opinion but we need to look at the bigger picture of what's happening in Australia and what impacts our economy. For it to drop more than 40% we would need economic conditions much worse than the GFC which would result in a major depression.
Tim Lawless of Corelogic talks comparables; "If we look at the current downturn in Australian housing, the trajectory of decline is actually quite unremarkable." He goes on to present the data; "Sydney, has seen values fall by 5.6% since peaking in July last year; a trajectory that is straight down the middle of previous downturns. During the GFC, Sydney dwelling values fell by 7.0% in the space of twelve months, and the downturn before that (2003-2006) saw values fall 7.1% over the same number of months.". Quite unremarkable.
On the contrary to what reporters believe, the Corelogic article then goes on to discuss the future; "By the end of 2019, Moody’s [analytics forecast] is expecting every capital city except Hobart (-2.4%) to record a positive annual change in house values, with year on year rises ranging from 4.5% in Canberra and Adelaide to a 0.9% rise in Perth dwelling values."
Why have a positive outlook?
Our employment growth is sitting well above the 20 year average
We have one of the healthiest economies in the world
Our banks are very stable
Lending is tough and we are maintaining rates in line with inflation
We do not have an over supply of property
Our population is growing faster than ever!
The demand is growing as fast as the supply and the stability of our economy is helping us to back a strong future for our housing market.
At the end of the day, as much as the media wants you to think they know it all, you must remember they are not the property experts and when they interview professionals they will often edit the information to portray the story they are trying to sell the public to achieve ratings.
Talk to a real expert, a property strategist for a detailed insight into the property market.
For more information have a read of the Corelogic article: https://www.corelogic.com.au/news/boom-doombut-it-really-bad
If you want to know more from our property strategists then contact us today.
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