Great Ocean Report – September 2019
Spring is here and as the temperatures increase so does the activity in the Australian property markets. With so much economic news pumped into our daily lives, it is hard to understand exactly what is happening and how it will affect each property market in Australia. As usual, we will do our best to demystify what is happening for you in plain English.
As we have discussed previously in our Great Ocean Report, asset markets, including property, tend to run in cycles. With property we tend to call them cycles and in the share market they use terms like bull (going up) or bear (going down) markets. What affects the performance of these asset markets is the attitude of the participants of those markets and what affects the attitude of the participants is the data/news/views they receive, particularly when they are at a point of making a decision.
Although we generally consider ourselves individuals capable of making our own decisions, the reality is most people follow the prevailing trend or sentiment. Where the trend is unclear or unstable, we tend to sit on our hands and take a wait and see attitude.
So when we look at the recent uplift in activity in the Melbourne and Sydney property markets we can attribute it to two things stability and the trend becoming clear. The Melbourne and Sydney markets represent about 60% of the Australian property market, so their performance is crucial in setting trends. Almost all the other property markets in Australia are a reflection of these two large metropolitan markets in some form.
You can only ever see the bottom or top of a property cycle in hindsight. When we look back, we can see that the ebb of this cycle was the federal election in May. With the Coalition returned (regardless of what your preference was) it provided a level of stability, in that there was no change in the existing property tax arrangements and generally we knew what we were likely to get moving forward.
That is one reason why we have seen the stabilisation of prices and increases in the metropolitan median house prices. According to Corelogic, prices have risen in both capitals for 3 months in a row and accelerated in August up 1.4 per cent for the month. Auction clearance rates have been in the high 60 per cent and 70 per cent range in both cities and this has mainly been caused by lower volumes of available properties for sale resulting in increased competition.
The main reason for this is that when a market reignites it is the buyers that reawaken first. First home buyers are usually ready to go with finance pre-approval before looking in earnest and they have been active while prices have been flat. With many investors finding it more difficult to get finance, it is the owner/occupiers that make up the vast majority of the active participants in the market. They like to know where they are going before selling so it takes them a little while to get going after a market turns positive. They follow the trend and want evidence that it is time to act.
Supporting their decision to act is that Australia continues to be relatively well placed economically. Economic news is never perfect and never will be, but if the individual making the decision to act feels comfortable and they want to act, they will, subject to opportunity. The general “wealth affect” that flows on from a positive property market cannot be underestimated and this flows through to consumer confidence. The Westpac – Melbourne Institute Consumer Sentiment Index rose 3.6 per cent in August and this is despite the recent turbulence in the share market due to the random tweeting habits of the US president and the tariff dispute between the US and China. The Westpac – Melbourne Institute Consumer Sentiment Index has a subsection called “time to buy a dwelling index” and that rose to 126 in August which is 6 points above its long-term average of 120. It was 108 in August 2018.
Employment figures rose in July up approximately 41,000 with 34,500 full-time and 6,700 part-time positions created, significantly beating economist’s expectations. These exact stats are always a bit of a mystery but regardless of their accuracy, the news is generally positive. The trend to lower interest rates, the recent commentary from the RBA suggesting they will do what they need to support the economy with more interest rate cuts expected if needed, all add to a platform of confidence that allows property transactions to occur.
Even the restrictive lending practices placed on lenders can be viewed as good for the long term stability of our property market. It can be a frustrating process for those trying to get finance compared to previous standards, however for those wishing to transact it should provide a level of confidence that this property market cycle is unlikely to overshoot and end in tears. You only have to rewatch the film The Big Short to see what happens when it does. Many economists and market observers would suggest the last cycle, peaking in late 2017, did overshoot somewhat and the result was a correction in prices back to sustainable levels.
For the coastal markets, it is looking like a very positive Spring and Summer ahead with the exception of the lack of available properties for sale. For property owners who have been waiting for the right time to sell, this year’s “selling season” will be a great opportunity. As mentioned at the opening of this report, buyers act first and the level of genuine buyers registering with us has dramatically risen in the past few months and we expect this to escalate as the foot traffic increases with the warmer weather. With this lack of supply, prices have held up well throughout the previous softer market period of 2018 and we expect this to continue or improve, especially in the upper end of the market where activity was especially quiet during this time, reflecting what was happening in Melbourne.
We hope you found this report informative. If we can be of any assistance in any real estate matter, please do not hesitate to call.