If you’re looking for a read on the herd, and what property prices will do this year, this is it.
Just when you thought there couldn’t be any more gas in the tank, the Australian property market finds another gear and slips into the overtaking lane, horns and hazard lights blaring, and couple of pretty girls in the back seat throwing their arms out the window.
Sydney is growing at an annualised clip of 16.5%!
And when you look around, most of the data is pointing to fairly pumping conditions – definitely in Sydney and Melbourne. The more resource focused states are lagging, but if the commodity boom-let continues we might see that all turn around.
Vacancies are low, auction clearance rates are high, price expectations are strong.
The price expectations one is interesting, and I haven’t tuned into it for a while. You might say, ‘who cares what the herd is thinking. The herd can be (and often is) wrong.’
But really, the market itself is a herd. At the ‘fundamental’ level of economic activity we’re grinding grains into flour and trading pretty beads with each other. Everything else is a social construct.
What the herd thinks, the market does.
And so where’s the herd’s mind at these days. What kind of start to the year has it had?
Well, if you look at the property price expectations component of the latest Westpac survey, it says the herd is pretty bullish on property prices right now.
Since the beginning of last year, expectations for future price growth have been trending upwards, and now they’re on a quick march north.
As far as the herd is concerned it’s 2013 all over again.
There’s been a sharp recovery in NSW. In Victoria and Queensland expectations have held at high levels, while over in WA, price expectations are actually picking up quickly.
This WA story is particularly interesting. I’ve noted before that Perth has become a buyers market – which is exciting for deal-makers like me – but now it seems the herd thinks that prices are already bottoming out.
That’s interesting. I don’t know what would have driven the change in sentiment… Maybe they just figure they’re due.
Anyway, when you look at the expectations data and the actual results, they line up pretty closely.
So fairly broadly, across the country, 2017 looks like a very solid year for prices.
If there was a downturn coming, like some people keep saying there is, it’s not on our radar just yet. On these figures, expect price growth to continue through 2017.
That means Sydney and Melbourne should continue to hold their double-digit clip.
Staying with the Westpac index, it’s interesting that on the ‘Is now a good time to buy a house’ question, the herd is pretty agnostic.
The index is hovering around 100, which means that there are as many people who think it is a good time to buy as there are who think it is not.
How do you square that away with the expectation that prices will rise?
Perhaps it just comes down to how expensive prices are. Now is not a good time to buy because things are just to pricey. It will be a better time when prices come down. But I don’t expect them to come down. I expect them to go up.
It’s going to get worse.
Maybe… I’m speculating here. But the point is, taken together, the indications from the Westpac survey is that the herd is pretty bullish right now.
At the same time, we’re starting to see lending standards begin to loosen.
Last week, National Australia Bank dropped the rate it uses to ‘stress test’ borrowers by 15bp to 7.25%.
That is, if you want a loan from NAB you need to be able to show that you could handle your mortgage repayments even if rates were hiked to 7.25%.
In practice what that means is that any given borrower can now borrow a fraction more than there were able to a few weeks ago.
More borrowing capacity, across the board, means higher prices.
NABs move brings them into line with ANZ and CBA, but it shows that competition in the mortgage market is getting a little hotter.
Of course this is at the same time as banks are hiking rates to cover increased funding costs, so it’s not all one-way traffic. But still, it shows that the mortgage market is competitive, and the banks feel that the APRA dog is on the chain for now.
So put these all together, and the picture starts to look rosy.
- A market entering the year with strong momentum already behind it
- A bullish herd
- And a competitive mortgage market.
That’s starting to look like a pretty good year.
Did anyone say ‘double-digit’ growth?
Has the herd got the wrong end of the stick? With Perth?