This cycle is breaking all records, but just who is driving it?
So Corelogic reckons that if property prices keep growing on their current trajectory, this will be the fastest recovery on record!
(Pew, pew. Ticker-tape everywhere.)
That is, on their current trajectory, property prices will overtake their previous all-time-high, which was achieved 27 months ago, and they’ll do that by April this year:
A remarkable recovery
Since national dwelling values bottomed out 8.4% below their peak at June 2019, the Australian dwelling market has quickly recovered 6.7%.
If growth rates continue at the January trajectory (of 0.9% value growth per month), Australia’s dwelling market would make a full nominal recovery by April, marking a 10 month recovery period since values found a floor last June. This is compared to an average recovery time of 11.7 months in previous cycles.
I don’t know if you were watching this chart in real time like I was, but I remember when that dark blue line of the current cycle overtook the light-green line of 2008-09 downturn. At the time I remember thinking, oh boy, we might have a doozy on our hands here.
And it kept grinding lower. It steadily became both the deepest downturn in terms of price falls, and the most protracted downturn, in terms of months.
But then, things turned around very, very quickly.
As Corelogic note:
This recovery is remarkable when considering the relatively long time it took for the market to bottom-out. The table below shows the number of months taken to get from peak to trough, and then from trough to recovery throughout past cycles.
Most recovery periods match the length of time it takes to go from peak to trough. However in 2020, the market recovery could be half the length of the downswing.
The other thing that’s interesting about this market, as I’ve noted before, is that this recovery is not being driven by investors. Investors are normally behind most bull runs.
But this time, the market is being driven by owner occupiers.
The owner-occupier upswing
Housing finance data from the ABS shows much more activity from first home buyers, upgraders, and down-sizers in this recovery. During the previous upswing that took place from 2012-2017, the portion of new housing finance to owner occupiers (excluding refinancing), averaged 59.4% based on the value of commitments.
Over the past 7 months, this has risen to 71.4%. It is worth noting that data on the latter is covering a relatively short period of time, and investor participation may increase over 2020.
I don’t expect this will last. An going and accelerating housing shortage thanks to the construction downturn should see rents start to rise in the near future.
This, alongside rising prices, will lure investors back to the market, especially as the APRA restrictions fade into the rear-view mirror.
Then, it will be on like Donkey Kong.