I’ve got a couple of leading indicators in my pocket and the results are… surprising.
Alright. I’m calling it. The bottom is in.
Yes, I know. It’s a pretty heroic call only 2 months into a property market ‘downturn’. But that’s what the data is saying to me.
And yes, I know I do make some pretty heroic calls from time to time. But you know, look at my track record. I think I do fairly well.
(I don’t have any data to back that up… Maybe we’ll get the ABC to Fact-check that one for me.)
Anyway, there’s a few key indicators suggesting that the market may have bottomed. Let me show them to you.
The first is the ANZ measure of internet search activity. I think this collects data from Domain and Realestate.com.au, and just measures the total numbers on search traffic.
As you can see, the measure lines up pretty neatly with house prices. It’s a little more erratic, but they’re definitely following the same trend. So we should take it seriously.
But then look at the latest observations. There’s actually been a pick UP in recent months.
And so despite all the doom and gloom, more people are hitting the search engines looking for property.
Can that be right?
Remember that the recent downturn has almost exclusively been driven by APRA restrictions on bank lending. That is, it’s sort of artificial. Man-made. It’s coming from outside the system.
And it’s not coming because people stopped wanting to buy property, or had a reduction in their wages, or lost their jobs on mass (the usual triggers of property corrections.)
It’s come because the government put a regulatory boot on the banks’ necks and credit growth stalled out.
Also remember that before all this happened, all we ever heard about was the affordability woes of young Australians and our terrible housing shortages.
None of that ever went away. People are still looking for a place to call home.
And my bet is that now that the market is taking a breather, they’re taking an active interest again, hitting the property platforms in search of a bargain (or just something reasonably priced).
They probably figure that this is their shot… and it probably is.
The other piece of I’m putting into this puzzle is this pricing data from Australian Property Monitor’s Dr Andrew Wilson.
I don’t know exactly what he’s doing with the data. It’s trend analysis, so I think he’s trying to account for seasonal factors. Autumn is a strong selling season in Sydney’s eastern suburbs for example.
Anyway, on his data, the bottom is already in for Sydney’s property market.
This is weekly data, so it looks like he’s saying the Sydney market hit the trampoline floor back in mid-July.
I’m not sure I’d be totally hanging my hat on this. Weekly data is bound to be choppy, and it’s not exactly clear what he’s doing, but still, it is what it is.
June was a rough month, but now things look as if they are improving.
Anyway, these are both what we call ‘forward-looking indicators’ in the sense that they lead the actual market. Search engine activity, in particular, being one of the most forward-looking indicators we have.
And right now, they’re suggesting that the market has bottomed, and the market is returning to strength.
And that’s not to say we’re completely out of the woods yet either. There could be a few false starts and bumps along the way.
That’s generally how it flows out of a downturn. Prices take a while to recover. They don’t come storming back.
But chalk it up in Jon Giaan’s big calls of 2018. The market has bottomed. Onwards and upwards from here.