Should we be confident or concerned?

Investor confidence was battered last year with eight consecutive rate rises, but will this year be any better for our property markets?

In all the current uncertainty, it’s good to know that there are some property market indicators that point the way forward and help us time those critical turning points.

To demonstrate how they work, I have used the analogy of a plane flight, where the aeroplane is our property market, and the passengers are potential buyers and sellers.

The takeoff

As the plane prepares to take off, everyone on board is looking forward to their destination, enjoying a rest, and catching up on some work during the flight or the in-flight entertainment.

A few optimists might even be looking forward to the in-flight food.

For the property market, this is when optimism is high - buyers and sellers are keen, with both sales and listings rising.

The inflight safety demonstration

We’re in the air.

Uh oh!

Thanks for reminding us that things can go wrong.

Now we have to assume the crash position, see how to use oxygen masks and where the emergency exits are.

We are even shown how to don life vests equipped with a light and whistle.

It’s not comforting to know that disaster could strike.

This is where the property market is right now – everyone has pulled back, with both sales and listings falling as we brace for the worst, but will it occur, or will we land safely?

The crash

Unfortunately, a few flights do end in disaster, and this also sometimes occurs in property markets when buyer demand totally collapses.

Everyone tries to sell but no one is buying. In other words, as sales drop, listings rise dramatically.

Property prices fall, and many investors are ruined.

The safe landing

Luckily, virtually all flights end with a safe and happy landing.

The passengers are now excitedly looking forward to their holiday, business meeting, catching up with friends and family, or simply arriving home again.

In the property market, such times herald the start of a real boom.

Prices are shooting up and it’s hard to find properties listed for sale because buyers are snapping them up as soon as they go on the market.

It’s what occurred during the last boom of 2020 to early 2022.

Which signals tell us when we have reached the bottom?

The two indicators that show us where any property market is poised are sales and listings.

They are both easy to find for any area, with annual sales provided free of charge by major data providers and the number of listings available from either of the two major online listings sites.

Because sales indicate the level of demand, while listings reveal the amount of supply, we need to use them together to tell us whether property markets are confident, concerned, crashing or booming and it is their trend over several months which indicates where we are heading:

Where are we now?

We are currently very much at the “concerned” stage, with everyone waiting to see what will happen next.

Will interest rates keep rising?

Will inflation peak?

Will there be a recession?

Or, are soaring rents and rapidly growing housing shortages leading to another property market boom?

What will happen next?

History shows that the only property crashes we have ever experienced were the result of rash investments in markets driven by speculative price growth instead of a genuine demand for accommodation.

On the other hand, after every major international crisis, war or other catastrophes, Australia has prospered, and our property markets have boomed with the arrival of thousands of new residents.

There is no reason to believe that the same is not about to occur again and that we should be confident, rather than concerned.

About John Lindeman John Lindeman has well over a decade of experience researching the nature and dynamics of various types of assets at major data analysts and is a leading property market researcher, author and commentator. For more information visit Lindeman Reports.