We close this year as one of the most memorable, with dramatic rises and rapid cooling toward the end of 2015. In Sydney, home values jumped 42 percent over the last three years.
The cracks I spoke about in my July blog “Cracks are appearing in the Sydney Property Market” have widened to halve clearance rates. Clearance rates have moved from in the 90‘s (ludicrous mode) according to the Newell Property Indicator, to around 50%, which means the market has gone flat.
Our Chinese capital flows have also weakened and according to the Credit Suisse Group AG may wane their appetite for global property by 30%. Perhaps it is the gyrations I spoke about from the Chinese equity market falling.
Some inexperienced real-estate agents were amazed how quickly the market turned in about six weeks, but as I prepared you in a previous blog, markets usually end with a blow off in prices to the top side then retreat quickly. Experienced professionals have seen this dramatic end when it occurred in the late 80’s and to some extent in 2003.
The difference this time, being at present, there are no signs of dramatic rises in inflation or interest rates. However, this could soon change although it would not be my favoured path.
At this stage if we stick to our current path, we will have a couple more years of favourable property market conditions for Sydney and Australia. You will still be able to make money out of the property market but it may be harder to do.
To me the easy money has been made, the Cowboys and Quick Flicks (people buying, selling, renovating to profit) all go to the sidelines and the Professionals keep going.
For all my St Ives followers, I did write an article about the dangers of the top end, which is the $3m to $4m price range. Not mentioning specifics, there was a recent property sale for just over $3m. If it had been put to market and sold earlier in the year there are sales records to suggest it would have fetched around $3.5m, now that’s more than a 10% discount. I suspect this form of volatility will continue, especially now the Chinese influence is waning.
At this stage moves like this in the property market are normal, whilst we transition to a consolidation stage.
If we want to see how the property market may behave in the future, I think we should look at what has happened to commodity producers, now that the commodity bust has occurred.
At this stage of the cycle we usually see companies go bust and that is not really occurring as it has in the past, why?: because of all the cheap money, the central banks are flooding the world economy and inadvertently propping up companies that shouldn’t be in business. Don’t get me wrong, I understand shares prices have been smashed but somehow the greater powers believe it’s better to prop up (smooth or meddle with the natural boom bust cycle) than let the businesses go broke and let the cycle begin again.
This tells me property is not going down fast or by much at the present. Property markets move a lot slower than equity markets and principally people buy property for safety because it is a hard asset.
Look around, we almost have full employment. The banks pay squiggly dot for your money in the bank and the US equity markets look dangerous. The central banks are still printing and dropping rates, except the US, who is trying to claw back some money for a rainy day if needed. We all have jobs and money is cheap.
The big question is will deflation take over and result in the very slow death of real estate? This is what the central banks are desperately trying to avoid for the world economy, only time will tell and we hope not.
So moving forward and possibly another rate cut from the RBA?? The property market shouldn’t have much more downside. If conditions change then we will reassess. Normally the next couple of years are a very good time to buy and sell because it is possible to buy low and sell high.
Remember if you are buying, selling or have no idea what to do with your property, contact housePro and I will help educate you on what to do. You will have a far greater chance of getting the best outcome for your property.
From my family to yours, I wish you all a very prosperous and Happy New Year.