Where are we on the property clock? What time is it?
A human construct for sure – one which seems to play an increasingly important role in our psyche.
And property has not escaped time’s tightening grasp.
When I started out in this business, very few talked about the property cycle or its now common reference point, the “property clock”.
I was one of the first to start using such a tool back in my real estate agency days.
But over the last twelve months, if I had a fiver for every time someone asked me what position we are on the property clock, I would have two skyrockets full of foldings by now.
I have observed of late, too, that most – regardless of whether they are sellers; buyers or involved in the real estate industry – ask about our take on the property clock’s position with a fair bit of anxiety – even desperation.
“Please tell me that the market hasn’t peaked yet?”
“Surely we have another 12 to 18 months before the music stops?”
“When should I sell?” “Is it too late to buy?”
Hmmm, I understand these concerns, but such angst about perfecting the timing, says a lot about how many folk (too many) view property investing these days.
It also suggests that many don’t fully apreciate how the property cycle works; that it repeats & that it isn’t just all about a recovery or upturn.
Different phases of the property clock require different actions.
Much can be achieved in the downturn and stagnation phases of the cycle – more often than during a recovery and especially an upturn.
The property cycle:
Our graphic this Missive, as one might expect, outlines where we think the major Australian markets are currently positioned on the property clock.
If houses differ in terms of their position on the clock from other dwellings (apartments or townhouses), we have marked them accordingly.
- Many of Australia’s residential markets are well positioned between, say, five and nine on the property clock.
Better times are ahead for most, if not all, of these markets.
- Having stated such, the overall residential market is losing some of its puff.
- In essence, the market is already correcting itself (this is what happens with the property cycle – it’s “the invisible hand,” to borrow an Adam Smith metaphor), with more supply coming onto the market, as evidenced by new listings and softer demand for homes in response to the higher prices.
Under these circumstances, a housing bubble is unlikely.True, demand has run ahead of supply in some markets like Sydney, but overall, each market is rebalancing.
- How strong calendar 2015 will be – real estate-wise – will depend on several factors – job creation; what interest rates do; investor appetite; overseas buying; supply/demand balance and our overall level of confidence.
- We think – as has been made quite clear in recent Missives – that our economy isn’t that crash hot.
Sadly, we are relying on a sustained housing construction upturn to fill the gap left by the resources slow down.
I say sadly, because building homes is the only thing we really have available over the short to medium term, that could generate more work.
Australia has great prospects, don’t get me wrong – we have the potential to be the “Switzerland of Asia” – but it will take a lot of effort and change to achieve this.
It will take a decade, at least, of hard work and a big shift away from our current culture of “entitlement”.
But until then, building something – houses, roads or casinos, take your pick – is our next (and really only) economic big thing.
- On that note, lower interest rates do impact positively on our housing market.
In order to rebuild housing market momentum, interest rates could fall during 2015.[sam id=36 codes=’true’]
This, in turn, could see those markets in the recovery & upswing phases of the property cycle potentially overshoot.
Some markets, therefore, might face a harder downturn in the future than otherwise may have been the case.
This might be the price we will have to pay to keep construction moving ahead.
Dropping interest rates does increase the chance of a housing bubble.
- Overall investment activity has been strong this year, but it looks like it is close to peaking.
There has been some “double counting” when it comes to investment home loans, so the overall level of activity – often reported in the 40 plus percent range – is overstating things.
I don’t think we will see any so-called macro-prudential controls on property investors.
- In contrast, there is much more first home buying activity going on than the ‘official’ ABS finance figures suggest.
- Owner residents have been very active of late, many of whom are using the recovery/upturn phase of their respective property cycles to buy and sell whilst the going is good (i.e. low interest rates; rising market; okay economic growth), and whilst confidence remains somewhat buoyant.
- For those markets in recovery, this upgrading/downsizing activity is likely to accelerate during 2015.
More so, if rates drop further. For those markets already in an upturn or downturn phase, the more traditional owner-resident real estate activity – the “bread and butter” stuff – will most likely slow down.
- Finally, bad times do pass – the cycle turns – “The dude abides,” to quote from one of my favourite movies,The Big Lebowski.
So, Emerald, Mackay & Gladstone for example, whilst still in a downturn phase, are approaching the bottom of their troughs.
This doesn’t mean that it is all cookies and cream for Gladstone, Emerald or Mackay next year, but it does mean that property owners there can start thinking about ordering some dessert. It just might take some time to arrive.
So, you have asked us for the time. Our graphic tells you what time we think it is.
But really, does anyone truly know what time it is or how long we have got?
We don’t really know.
This is our best estimation.
You might disagree with some of our assessments. Let us know if you do. Comment below
Our next property clock update will be in March 2015.
We will be posting four property clock Missive updates each year.