Bullish or bearish: Investor activity now drives housing markets

A SIGNIFICANT reduction in bullish activity from investors has turned prospective owner-occupiers bearish in the housing market.

Bull markets and bear markets are terms normally used in reference to equities markets, but similar philosophies can also be applied to real estate.

In a bull market activity tends to be high and there is a positive energy which stimulates prices and more urgent activity.

The opposite dynamics are typically reflected in a bear market, with a downturn in prices and activity, and a loss of energy in the market.

According to riskwise.com.au chief executive officer Doron Peleg, property investors have increasingly been responsible for bullish sentiment over the past decade.

“When the investor bulls leave the market so too does the energy which drives that market,” Mr Peleg said.

“Investor interest is aroused when the market is going up and we see more activity.

“The investor cohort today has a very material impact on the residential market, particularly in Sydney and Melbourne.”

According to the latest report from RiskWise and WargentAdvisory, titled Impact Analysis: Negative Gearing, CGT & Australia’s Residential Property Markets, credit restrictions and tighter lending standards have had a direct impact on the Australian housing market resulting in fewer active property investors.

Dwelling prices in Sydney and Melbourne initially recorded a decelerated growth rate, followed by price reductions in Sydney and, to a lesser extent, Melbourne.

CoreLogic has already reported that the annual rate of dwelling price growth had significantly dropped to Australia’s lowest since October 2012.

“The number one indicator for market sentiment is investor lending finance (excluding refinancing).

“If you see there is no increase in investor activity – the dynamic likely to prevail at present due to credit restrictions as detailed in our report – you will also see the annual rate of dwelling price growth slows significantly.

“In aggregate, therefore, you cannot now expect to see any price growth in the major markets,” Mr Peleg said.

“The second measure we need to look at is the interaction between investor activity, auction clearance rates in the major markets and dwelling prices.”

He said the impact of investor activity on the housing market had been clearly demonstrated over a prolonged period which included the global financial crisis, the boom and subsequent downturn in resources construction, and increases and decreases to mortgage rates.

Investors have been proven to be significantly more sensitive than owner-occupiers to changes in out-of-pocket expenses, driven by interest rate fluctuations, changes in legislation or other events.