You know, a lot of people thought I was crazy when I was talking about 15-20 percent house price growth around the beginning of the year.
A lot of the market indicators were pointing down, there were still some pretty huge risks on the international horizon, and there were a lot of folk who were arguing that a 15 percent fall was more likely than a gain.
Now I’m not one to say, “I told you so….” Well, actually I am. I told you so. You’ve got to blow your own trumpet in this game. No one’s going to do it for you. You’ve got to own your successes and your failures.
And you’ve got to pull the market up when the market get’s it wrong. The last year or so shows just how the market, and almost every ‘expert’ in the country, can have no idea about what’s happening right under their noses.
I went out on a limb. A lot of people thought I was nuts. But ‘the best minds in the country’ were looking at exactly the same story I was, and they were getting it exactly wrong.
Take a look at house prices right now.
There is a solid momentum behind prices, across the country. Sydney, as we know is leading the way, but as this chart shows (thanks to the SMH), every capital on is an upward course (though I guess Adelaide and Hobart are still looking a little flat).
But whilst I’ve got your attention, take a good look at Brisbane. On the upward march, but prices haven’t recovered to the 2007 highs. That’s why it’s my pick of the bunch of places to invest right now.
In 12 months, I’ll be sending out an email talking about this very day and gloating about yet another prediction being bang on the mark.
However, let’s get back to the main theme.
The pace is only accelerating. According to RP Data, Sydney House prices rose 5.2 percent in the September quarter. In Melbourne they were up 5.0 percent in the quarter.
If they keep that pace up, then we’re looking at 20+ percent in the not too distant future…
And if you want a real guide to exactly how hot the property market is right now, look at auction clearance rates. As this chart shows (again thanks to the SMH), auction clearance rates are on a massive bull run.
In Sydney and Melbourne, we’re now back around the peak levels achieved in the boom of 2010.
But look at Adelaide! Adelaide gone even further, taking clearance rates to the best level in years – even taking it to the traditional auction centres of Sydney and Melbourne.
If auctions are clearing, which means buyers are buying and sellers are selling, and we’ve got more and more properties coming on to the market, price rises are simply inevitable.
The market never just churns in one spot, especially when interest rates are so low, and there are all sorts of factors pointing to a boom (check out my last three posts for example.)
And how much are prices going to rise?
Well, ANZ has done some interesting work on this question.
They’ve pulled together this chart here. It compares national auction clearance rates with the year on year change in house prices, letting auction rates lead prices by about 6 months.
Well, would you look at that?
You can track the close relationship between clearance rates and prices since the GFC. And you can see that the recent price increases we’re enjoying right now are totally consistent with the pick up in clearance rates we’ve seen through the year.
(Makes you wonder how so many got it so wrong for so long…)
And look at where it says we’re going. If this close relationship holds, and there’s no reason to expect it won’t, then it’s saying in six months we could expect to see house price growth up above 13 percent.
13 percent! Suddenly my call for 15 percent is looking ‘middle of the road’, ‘in line with market expectations’, ‘conservative’.
I thought I was out on my own. Now I’ve got all sorts of economists stepping on my toes.
So there’s an interesting lesson here. And it’s not that property prices are booming. We all know that.
It’s about learning who to trust in this game.
As I’ve said more than once, you can’t trust the media. They’re only interested in disaster stories and making papers sell…
But you can’t trust the big economic houses either. They’ve got their reputations on the line. If they go against the herd – against what everyone in the market is saying, and make a big call, like I did, they’ve got a lot at risk.
But if it blows up in their face – if they make a big call and the market goes in the opposite direction, then they look like a proper idiot.
‘How could they miss what everybody else saw coming?’ ‘How could they get it wrong when the truth was so obvious?”
It’s enough to kill the career of any young economist. So the downside risks are huge, and far outweigh any benefits that might come if you get it right.
But if you just follow the herd on the other hand, and you get it wrong, then you just say, well, nobody else saw it coming. It was a total surprise out of left field. You can’t blame me.
And so these professional economists simply have an incentive to play it safe – to not break from the consensus reality, no matter how they actually see it.
Add to that, probably the biggest reason: Economists and journos typically aren’t property investors.
And this is why the market as a whole can get it so wrong for so long, just as they have done with house prices over the past year.
So what’s the solution? Well, you’ve just got to find sources you can trust. And not because they look like they’ve got an honest face. Take the time and check out the arguments they’re making, and decide for yourself if it makes sense.
And of course, see if they get it right.
I live and die by my calls. Not because I want to be a smart-arse, but because I’ve got real money (my own money) invested in a big way. I don’t seek media attention, nor do I want to write for newspapers, magazines or build a career as a journo.
I’m invested, they typically are not.
That’s what I hang my hat on.