The property market has had a phenomenal rise over the past six months.
In January, I said, ‘Historically the pause is the buying opportunity. Has it finished? Maybe. We will have a better picture by March.”
As it turned out it was the biggest buying opportunity of this cycle.
In January, I commented, “This tells us that more interest rate cuts are to come…..and the yield story is still intact (buying assets for their return on the investment). The end result is more price growth.”
After the RBA cut rates in February and May, the market basically gapped higher with gains of up to 20% from December last year.
The bond market and China seem to be telling us rates are still going lower so the game is more or less still the same, buy assets with cheap money.
The market seems to be playing out what I said in August last year, “It is my opinion that we are in an upward cycle that historically lasts between 3 to 5 years.” This is the 3rd year.
There are cracks appearing in the Sydney property market.
I commented in August last year “There will always be pauses and dips but generally good times are to come and you might just be surprised how high we might go. Market tops are typified by getting stronger and faster before they fall.”
The speed at which we have risen over the last six months is the strongest since the 1980’s. That story did not end well with recession several years later and in fact it was the last recession Australia has experienced, some 23 years ago….
The gyrations in the Chinese equity markets to me are very concerning and the implications of this may be felt in the coming months.
The Sydney property market is made up of many markets and some markets have reached their peak in the cycle.
Over the next couple of years you will probably see rises in the averages, although this increase will be distorted by renovating or new builds coming onto the market and being sold, these properties increase the averages.
I believe we are at the back end of the cycle, the last couple of years.
Traditionally, when stock markets weaken, money goes into property and in the past supported the top end moving forward.
Who knows if the capital flows slow from China or speed up?
With banks increasing interest rates and the Loan to Valuation Ratio (LVR) on loans to investors, the market will be effected.
The end of this year is shaping to be a tell-tale time where we will see some clarity to where the market is going.
If you are buying a house to live in it is always a good time to buy because you a have to live somewhere. If you are speculating in Sydney, going forward is going to be more difficult than the past couple of years, so it’s prudent to be realistic.
Previous property markets have corrected with falls when interest rates rise sharply, effecting affordability, and I don’t see that happening anytime soon.