The property-doomsayers are getting hysterical. That’s always an interesting signal.
I’m actually ready to call the bottom on this market.
The declines are coming to an end. The market is about to turn.
And what data am I basing this bold prediction on? None. I don’t actually have any evidence.
But it does appear to me that we have hit peak crazy, and that’s got to be a market signal for something.
I’m talking about ‘news’ headlines like this one: Property ‘Armageddon’: House prices could fall by 50 per cent.
Yup. They’re going all in with this one.
With Sydney and Melbourne’s falling house prices infecting other capitals such as Brisbane, Darwin and Perth, some doomsayers say property prices could slump by as much as 50 per cent by 2022.
Digital Finance Analytics chief Martin North says Sydney and Melbourne houses will suffer price falls of 20 to 30 per cent, while high-rise units could slide by up to 50 per cent from their peak prices in 2017.
North says prices in Melbourne, parts of Brisbane, Perth and Sydney will fall the most between now and 2022, but it is outer suburbs that will be hit with the largest price falls.
“Prices will unwind in Sydney and Melbourne for at least another three years,” he says. “The problem is a lot of the high level data is averaged and averaging tells you nothing at all. Prices are not dropping by the same rates everywhere.
“In some places, for example western Sydney, prices are 23 to 25 per cent down or more, but areas closer into the city, particularly houses, are probably only 3 to 5 per cent down.
“If you look at Newcastle or the Illawarra, it’s 7.5 per cent down but there are other areas out in those regions where prices that have hardly moved at all.
“Perth is down 15 to 18 per cent on average. And if you look at Darwin, it could be 25 to 28 per cent. So these are big movements, they really are.”
Economist former government adviser John Adams — who once worked for Liberal senator Arthur Sinodinos — believes economic armageddon is coming.
Adams says Melbourne’s falling house prices are in a devastating slide that will go beyond Moody’s forecasts and could reach more than 40 per cent from peak to trough.
I’ve heard all this before. North has been trotting the same numbers out for about six months now.
And I think the bears are getting more excited and shrill because the data does seem to be turning.
The pace of declines in the big capitals is getting slower, not faster.
And that’s because, despite the headline falls, most things have been running in the property market’s favour in recent months.
- The Hayne Royal Commission wound up and was a lot better for banks than a lot of people were expecting. Financial sector funding costs had blown out to 60bps above the cash rate in anticipation of the worst, but are now back down to a 24bps premium.
- At the same time, some banks are cutting their retail rates, so funding costs are down overall.
- The APRA restrictions caused a bit of logjam in the mortgage market as everyone tried to get themselves up to speed. That seems to be clearing now, and the market has found its feet.
- The RBA has clearly moved to an easing bias, and rate cuts seem likely in 2H2019.
- And the election should give things a bit of certainty, and the market a bit of a bump, as it normally does.
Add to that some property bears screaming at their coming irrelevance, and I think you have the making of a bottom.