Quick reality check
Ok, imagine a balloon.
Now pump air into that balloon so it becomes 75% bigger. That is, take about three quarters of its size, and add it again.
Now, let a teensy bit of air out of it. A tiny amount. Like 0.5%. It is now 1/200th of its size smaller.
Would you say that the balloon is deflating?
If you said yes, there’s a job for you in the main stream media.
I’m rolling my eyes at the moment, listening to all the commentary on the supposed slowing in house prices.
Those numbers I gave you above are exactly what we’ve seen in Sydney. Since March 2012, Sydney prices rose a thumping 73%, largely on the back of the RBA slashing rates, from 4.75% to 1.5%.
And then in the past couple of months, prices have taken a step back. They were flat in August, fell 0.05% in September, and were down 0.47% in October, according to Core Logic.
Cumulatively, since July, we’re down 0.53%. (And really, almost all of that was in a single month, so I’m not sure I’d be hanging my hat on it.)
But for all the fuss, you’d think someone had just squashed the air out of a whoopee cushion.
And given the context, it’s almost surprising it hasn’t been bigger.
I mean, APRA has been going hard on investor lending – particularly interest only. Banks have been beaten over the brow, and it’s got to be one of those toughest credit environments in years.
But all we get is 0.5%.
And apart from a headline figure that barely looks like a statistical anomaly, things are pretty robust in Sydney. Auction clearance rates are still well north of 60%, and comfortably above the 50% that normally signals a softer patch.
Over in Melbourne, of course, auction clearance rates remain at boom-time levels, well north of 70%, and prices are growing almost 8% year on year.
And while credit restrictions might be putting a chill on demand, looking down the track, supply still looks like it will struggle to keep pace.
Construction has definitely peaked, even in the high-rise apartment sectors. (Outside of high-rise the construction ‘boom’ was actually pretty muted.)
And then look at what’s happening in the land market (the best leading indicator of future detached housing construction):
Sales have picked up, finally, but still remain lower than they were in 2013, 2014 and 2015.
Given what’s been going on with population growth, we’d need land sales to be growing just to be keeping pace with demand.
The fact that they’re falling says that the housing shortage is only going to get worse – and at an accelerating rate!
And as a result of all this, land prices have just punched through $1,000 a square metre.
Yep, a square metre of dirt, probably on Sydney’s far flung fringe, will cost you over $1,000.
Imagine what land’s worth within 20km’s of the CBD…
These are the fundamentals of the boom. And it’s why it’s not going anywhere soon.
Sure, the market is taking a breath, as the tightest credit environment in years takes effect. But other than that, I’m seeing a market that still has further to run.
A lot further to run.
You hearing any deflating noises?