What happens when property markets correct? [Podcast]

Is Australia’s property market really a precarious house of cards waiting to topple?

There’s a lot of debate at present raging. 47513700_l

Some say that the future for property is bright, while others suggest that the markets are set to crash.

Obviously, if you’re considering investing in property or about to buy a home, it would be really good to know who’s right – and history does actually teach us some great lessons.

What can we learn from the past that we can take forward into the future?

What happens when property markets correct?

In a recent Real Estate Talk show Michael Yardney, from Metropole Property Strategists, discusses his view on these questions.

Here’s a transcript of the interview:

(Alternatively you can listen to the short podcast at the top)


Kevin:  What lessons can we learn from the past? michael-yardney2

That the market probably isn’t always going to move forward?

Michael:  No.

Kevin:  There are times in the past where it has actually checked.

What have we learned from that?

Michael:  It’s not going to keep moving forward.

The first lesson is our markets are fragment.

There’s not one property market.

That’s where people get it wrong to start with.

Not only is each state its own state of its property cycle, but, even within each state there are different market segments behaving differently.

Some of them are geographic, others are different price points or different types of property.

There isn’t one property market, and we have to define more clearly where we’re talking about.

Kevin:  There might be another lesson here too. housing_bubble

Firstly, is there a bubble?

And just because there may be a bubble doesn’t always necessarily mean that it’s going to burst?

Michael:  Some people say it’s a bubble because house prices are high and unaffordable to some.

But that doesn’t mean it’s a bubble, and it doesn’t mean it’s going to burst.

We could take some lessons from what’s happened in the past, because it’s likely that the future will repeat itself in one form or another.

Kevin:  Has there ever been a time where the market has checked?

Michael:  The market’s corrected.

If we want to be honest about crashing – in other words, where it’s dropped significantly, albeit for a short time – it was after the Second World War and during the Great Depression.

Our financial markets were very different then.

In the 1940s, house prices dropped 17% over a two year period.

But  they jumped back and grew strongly afterwards.

And you can understand during the war why that could happen.

Of course, in the Great Depression unemployment was high and property prices corrected significantly, as well.

But no one is suggesting there’s a depression on the horizon for Australia. 

Our economy is slowing a bit, but it’s still the envy of most developed nations.

Kevin:  What’s happened at other times when the market has actually corrected?

Michael:  Corrected is what normally happens, and to understand what’s ahead.

Sydney was in a terrific property boom between, probably, late 1990s and the end of 2003, early 2004.

It was one of the best performing property markets for that period of time; helped by the excitement of the Olympic Games.

But after this boom, the Sydney property market corrected.

It didn’t collapse.

It just corrected.

Property values dropped from their peak by about 9% or so, but it didn’t happen instantly, either – it took 23 months to play out – and of course, not all parts of Sydney’s property market dropped in value equally.

Again, if you look at what happened in Brisbane and Perth where values peaked in around 2008, they had a really good run in the middle of the last decade, but again, property price didn’t collapse.

They just sauntered along for a while allowing fundamentals to come back into alignment. 40994256_l

Much the same happened in the 1990s.

The recession we had to have after a huge property boom in the 1980s, and at that stage interest rates rose to 17%.

Kevin:  I’m sure many us of remember that time.

Michael:  Again, properties didn’t collapse; they just flatlined for a few years as affordability, supply and demand, and all those other economic fundamentals caught up.

Most of us will remember, not that long ago, property prices peaked in late 2010, and that was the last time the Reserve Bank pushed up interest rates to slow our property markets down.

In general, in the capital cities property prices gently eased; they didn’t plummet.

Now, of course, if you’re looking at certain very specialized markets, like the mining towns, like the holiday destinations, like some regional areas where there isn’t a lot of depth to the market by owner-occupies, yes, in those locations, property markets can drop in value significantly – and we’re seeing that.

But in the big locations,  unlikely to have a crash.

Kevin:  Okay, Michael, thank you for your time.

Michael:  A pleasure, Kevin.


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