Headline numbers are hiding a big secret. Some markets are booming.
I’m going to show you what segments are actually booming in Australia right now, but first I’m going to show you a scary picture.
This is every property price decline in modern Australian history:
Ok, let’s pull a few things out of this. The first is that declines are common. We’ve had seven in the past 30 years – so like one every four years or so.
The property market moves in cycles. I think a lot of investors might not be aware of this – they might never have lived through a serious turn in the cycle before.
And so Sydney starts hitting the brakes and they start wetting themselves. At the risk of sounding like a grizzled old investor, get over it. It’s what markets do.
If you can’t tough it out for a soft-patch that might last a year or two, this game isn’t for you.
(Not that I know what game is. Bond trading?)
Anyway, the other point is have a look at where the current cycle sits in historical perspective.
On this chart, the peaks of each cycle have been lined up, so you can track each one from its peak.
And what you can see is that the current cycle – the red line – is actually the tamest cyclical downturn in history.
Let me say that again unless pants-wetters are still reading my blog. This is the tamest correction in history.
It’s still early days, sure, but let’s just remember that. Nothing to flip your lid over here.
But here’s what I actually wanted to share with you. This is the current property market broken up into segments. The top 25% most expensive houses. The middle 50% and the bottom 25%.
So look at what’s happening here. The top end of town – the top 25% – is falling, coming off some pretty heady peaks.
However the middle 50% – the majority of the market – is still growing, although it does look like the pace of growth is slowing.
And then there’s the bottom 25% of the market, which is going gang-busters.
And so only the top 25% of houses are falling, but they’re falling far enough fast enough that they’re able to pull down the aggregate numbers.
And enough to put a bit of doom and gloom on the paper headlines.
And so what’s the real story here?
Yes, the property market has peaked, and we’ve entered an historically common cyclical downturn, which, in fact, is the most benign downturn in modern history.
BUT – when you pull it apart, that downturn is entirely due to the top end of town. Without the falls there, the overall market would be growing strongly.
And some segments – your cheapies and your entry-level homes – they’re actually booming.
So tell me again what kind of market we’re in?
And tell me again what I’ve got to be afraid of?