The Australian Property Market – what is going on?
The Australian property market is the subject of much conjecture at present. As we work in a discretionary property market we are avid watchers of market sentiment and much of the sentiment is driven by what mainstream media publishes.
We have seen ridiculous situations recently where you have journalists in the same organization writing in the same publications using the same statistics writing articles that are polar opposites in terms of intent. It is almost ‘who can use the most dramatic headline’ to get the most comments on their articles to justify their existence.
We think it says much about the state of our media in our current information overloaded environment. Whoever gets the most clicks on the website keeps their job.
So what is going on?
There are two principles that we need to understand to clarify what is happening.
The first principle is that when you look at any property market you can soon work out what is going on by looking at the three key factors of supply demand and the sentiment attached to that market place.
The second principle is that the Australian property market is not one property market. It is many property markets that are affected by different factors peculiar to that particular place. There will certainly be factors common to other areas but you can also see factors that are unique.
There were many instances in the past year that really highlighted this.
We had record rain on the east coast that produced devastation from flooding and cyclones while Perth was in drought with record days of heat. Each set of circumstances affect the sentiment of their market places differently.
A tangible example of this is the oversupply of property for sale in the Sunshine Coast and Gold Coast markets. Even though they now have large population bases they have historically attracted lifestyle buyers and the demand of these lifestyle buyers has driven the property market.
If you have a year of heavy rain (caused by the La Nina) lifestyle buyers will simply not make the emotional decision to buy. This increases supply and the buildup of these properties affects sentiment and in turn demand.
To continue the above example using Perth as a sample that property market has been soft for a completely different set of reasons. The main reason is that it has not recovered from a hangover from the last property boom. It saw a massive appreciation in values in a short period that was not sustainable and the GFC and rising interest rates have not let it recover.
We would expect sentiment to start to turn in that market on the back of the massive mining investments that the state will continue to experience. That market more than any will feel the ripple effect of the mining boom.
You then have overarching factors such as interest rates and even the high Australian dollar which can affect areas differently.
Even within individual cities there will be demographics that can handle interest rate rises better than others and those demographics through affordability will be attracted to particular suburbs or areas so in turn you could say that there are individual markets within the same city.
There was a report in The Age this week stating that the overall Melbourne auction clearance rate was 59% however it goes on to report that there are 17 suburbs that year to date have posted clearance rates of above 75%. So the sentiment of the property owners in those suburbs is going to be markedly different to those in the outer suburbs where the clearance rates are much lower.
A look at the specifics of what is happening.
In a climate of rising interest rates and negative sentiment from overseas property markets Sydney and Melbourne have both shown resilience due to low unemployment and continued population growth. In the latest RP Data figures for the twelve months to April Sydney’s median house price is slightly up (1.2%) and Melbourne’s is slightly down (0.8%). There is a buildup of stock on the market and price growth will remain subdued while this continues.
Brisbane is down due to the flooding – no surprises there. Canberra is up 0.7%. No one really cares about Adelaide Hobart and Darwin (unless you have property there which we don’t so we will move on) and Perth we have already spoken about.
The Queensland coastal market has been affected more than anything by the combination of a high Australian dollar a record year of rain and a lot of aging apartment stock. The rain dramatically slowed tourism which is the lifeblood of that coastline so there is no mystery that prices are down and supply is up in that part of the country .
That brings us to our part of the world
In our next report we will be doing our usual end of financial year round up that will give you detailed statistics on the performance of the market. But in general terms our immediate proximity and our lack of supply has held us in good stead.
Similar to Melbourne the volume of sales is down but the prices appear to be holding up well. Properties that people are falling in love with are selling well (as mentioned in the last Great Ocean Report there was a new record price set in Eastern View recently) and the ugly ducklings continue to attract less interest.
In a rising market buyers will buy properties they don’t absolutely love because they don’t want to miss out but in a flatter market there is no urgency to do so.
The soon to be completed final stage of the Geelong Ring Road is a major emotional and practical advantage that is a specific factor to our area which will certainly help underpin prices.
Between Anglesea Aireys Inlet and Lorne there are approximately 8000 properties in total and with set town boundaries there is no chance for expansion so supply is limited. Within a few weeks there will be completely seamless access between these towns and the 4 million plus people of Melbourne.
We say this is an emotional advantage because if you are a Melbourne resident considering buying a lifestyle property you can more easily justify your purchase if you know you can access it easily.
The Surfcoast Shire is the fastest growing shire in regional Australia and although the Torquay area will continue to see the bulk of this population growth there is certainly an overflow effect into our area.
In our opinion you are not going to see a major change in sentiment towards the property market until interest rates have peaked. This should occur in the second half of this year if they haven’t already done so.
The perception of increased rates is as bad as the actual rate increase for most people. Once it is generally viewed that the next move is down you will start to see a sentiment shift. People will see that the world is not about to end and move forward.
Do you know how we know that? Because it has happened in every economic and property cycle for the past twenty years.
We hope you have found this Great Ocean Report informative and if we can ever be of any assistance please do not hesitate to call on 5220 0000.
Links
- Great Ocean Properties website: www.greatoceanproperties.com.au
