What history tells us about Property Prices
Well, with a glut of research and articles released since the end of the financial year, clear patterns are now emerging within the property market. It has become clear that interest rate rises and a sharp decline in consumer confidence is now having a significant effect on both property prices and number of sales.
Of all the articles released, the most telling was arguably a video posted on social media sites late Saturday by Tom Panos discussing his experiences as an auctioneer in Sydney yesterday.
Tom Panos is arguably the most informed and relied upon real estate expert in Australia which includes his role in the media with News Corp and as an in demand auctioneer in Sydney. Please remember that it is in Tom's best interests to promote the positives in the market which is why this video is so compelling.
Of Tom's sales and auction results on Saturday, just one sold. In fact he barely saw a buyer all day. May I share the fact that not one of our 35 open homes with Ray White Robina on Saturday have managed to secure a buyer that is willing to move forward with a written offer. Tom's experience's in Sydney are now mirroring what we are seeing here on the Gold Coast.
Tom's message to sellers and agents was direct and to the point. For sellers looking to sell, do so now. Don't wait until the traditionally stronger spring selling season because this spring is predicted to be very different. For our agents that have sellers relying on our advice, now is a seller's best chance of securing a sale before market sentiment declines further.
With buyers withdrawing from the market in droves and listing numbers tipped to surge in September, the balance of power is expected to move dramatically towards buyers and prices are expected to suffer accordingly.
This week I have provided you with the usual newspaper, online and video content. We have also added the latest Corelogic July market update video which discusses in depth the changing environment that we are moving into.
With all of this in mind, our lead article today comes from the Australian Financial Review released on Saturday. The article with the headline "What history tells us about property prices" will give us and our sellers a great insight into what has happened during previous downturns and potentially what to expect from this one.
Please see below
What history tells us about Property Prices.
Prices have been falling since they peaked in April and many economists expect that by the time the housing market hits its lowest point, prices will have fallen by at least 15 per cent. If that happens, it would make it the largest downturn on record in Australia.So, what does it mean if you want to buy or sell? Does history give us clues about how markets recover, and what the first signs are? At the end of the day, is it possible to pick the bottom of the market?
What is the key driver of house price movements?
As history shows, property downturns tend to be associated with higher mortgage rates.
The property cycle during and after the global financial crisis – between 2008 and 2015 – underscores just how quickly rate hikes and cuts influence property prices (although there were other factors at play during this period, including the addition and removal of fiscal support, which also had an impact on the market).
The current property market is particularly sensitive to interest rate changes, given homeowners are facing a “quadruple whammy”, stretching them to their limits.
“The rate of decline is far worse than what we saw through the previous downturn. Affordability is more stretched, household indebtedness is higher and then this dual factor of inflation and rising interest rates is more hard hitting,” says Tim Lawless, Asia-Pacific research director at CoreLogic.
This means the biggest factor at play in determining when house prices will start to rise again is interest rates, and when the RBA will begin a cycle of cutting them once again.
“When we start to see interest rates leveling, which will probably be somewhere around the middle of next year, if not earlier than that, that’s probably the cue that housing markets will start to stabilise,” says Mr Lawless.
Two signs that we might be approaching the peak of the rate cycle is that inflation starts to head back down towards its target range of 2-3 per cent, and that the tight labour market begins to loosen.
Do downturns (and upswings) follow certain patterns?
Yes, there are certain characteristics that property cycles in Australia tend to have in common.
First, when it comes to the capital cities, you tend to see Sydney and Melbourne lead the cycle and smaller cities such as Brisbane and Adelaide follow. Although there are exceptions.
“Perth, for example, is quite disconnected and much more driven by the commodity cycle and major infrastructure projects, and the same with Darwin. And then there are the regional markets that are more agricultural, for example, and are more divorced from the broader trends,” Mr Lawless adds.
Domain’s chief of research and economics, Nicola Powell, says Sydney and Melbourne tend to record greater price swings compared to other capital cities because homeowners are more sensitive to changes in economic conditions.
“Generally speaking it’s where incomes are higher, households are more indebted and there’s greater investment activity proportionately ... so you tend to see bigger swings, both in price gains in an upswing, but they are also more vulnerable in a downturn,” Dr Powell says.
How long do property downturns usually last?
A recent analysis by Domain that observed the duration of market cycles in Sydney, found that the downturns tended to last less than half the amount of time (in months) than the preceding upswing.
“The downturns are shorter and less severe than what was seen in the upswing, generally speaking,” says Dr Powell.
For example, the property boom between 2000 and 2004 lasted 42 months until reaching its peak, whereas during the downturn that followed, it took just 18 months for prices to fall from the peak to the next trough.
Mr Lawless points out that through every down phase, the annual gain in housing values in the 12 months leading up to the market peak has been equal to or higher than the entire peak to trough decline that follows.
“Over a two-year period ahead of each market peak, capital gains were always more substantial than the subsequent peak to trough decline,” he adds.
Is it possible to pick the bottom of the market?
Mr Lawless says people should time their decision to buy a property on their own circumstances and budgets.
“The reality is, trying to pick the top and bottom of the market is impossible,” he says.
Nevertheless, there are several key indicators – a combination of macroeconomic and housing market factors – that the market may be on the cusp of a turnaround.
Please see below Tom Panos Video posted on Social Media following his Auctions Yesterday.