It's just not that complicated.
Do you want to know the real reason why I'm so good at forecasting property prices?
And look, I'll admit my forecasts were a little pessimistic during COVID, but then again everyone's forecasts were. On the way out, my forecast we're more bullish than the market, but turned out to be pretty much on the money.
Anyway, I'll tell you my dirty little secret. The reason I'm so good at forecasting, is because forecasting just isn't that difficult.
At the end of the day, prices are always a function of supply and demand. It's the first law of economics. You can add all sorts of theories on top of this, but if you lose sight of supply and demand you're going to come a cropper.
And so if you look at my forecast for this year—8 to 10% this calendar year if you're interested—it's a forecast built on three fundamental shortages in the housing market.
Let's take a look at them.
Shortage one: actual houses
it has been an incredibly tough few years for the construction industry. Supply chain bottlenecks out of COVID saw construction material prices soar. With builders working to fixed price contracts, margins were hammered and many builders went bust.
The lift in corporate insolvencies through 2023 was almost entirely driven by the construction sector.
2024 is not shaping up to be all that much better. The housing industry association is forecasting a fairly weak year in terms of new housing stock.
As a result, any hope that we might build our way out of the current housing shortage has been completely blown out of the water. At a time when we need to be ramping up our construction levels, we are now building fewer houses per head of population than anytime in the past 50 years.
Shortage 2: housing stock
At the same time as there is a shortage of actual houses in the country, there is a shortage of homes available for sale.
The total number of listings available for purchase right now is currently 17% below the five year average.
Not that that five year average was a particularly high hurdle to clear. This has been going on for the better part of a decade.
But the net effect is that potential buyers a meeting in market that is very thin in terms of available stock. That is another way of saying that the market is under supplied.
It's a shortage.
Shortage 3: Rentals
The final shortage I want to draw your attention to is the shortage of rental properties.
Vacancy rates, at under 1% in the capital cities, are the lowest they've ever been. It is incredibly hard to find a rental property.
That shortage of rental properties pushes up rental prices, which feeds through into yields, and which in turn pushes up prices.
Now the key thing to note here is that in 2024 none of these shortages are expected to get better.
In fact all three are expected to get worse.
And with that property price growth will accelerate.
It's not rocket science. Oh shit
JG.