Is The Australian Property Market Primed For Growth? | July 2019 Update

Is Australia primed for a season of growth in the Australian property market? Both Sydney and Melbourne had growth in the month of June and there are a bunch of positive change happening that may cause the market to grow:

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0:00 – Is the Australian property market primed for growth?
0:55 – Australia as a whole declined by 0.2% in the month of June
2:31 – A lot of positive changes have happened over the last couple of months
3:59 – Monthly sales volume may have found a flaw
4:34 – Auction clearance rates are trending upwards
5:00 – Some key resources I have looked at over the month
6:52 – Steve Keen’s thoughts on the Australian market growing in the short term
10:56 – Sydney property market update
13:57 – Melbourne property market update
14:33 – Brisbane property market update
16:12 – NSW and VIC has the highest jobs growth and lowest unemployment rates
16:48 – Adelaide property market update
17:41 – Perth property market update
18:42 – Hobart property market update
20:11 – Darwin property market update
22:24 – Canberra property market update
24:02 – Tight credit conditions continue to dampen the market
25:02 – Australian property market update summary
26:36 – Have a clear strategy for property success in this market

Resources Mentioned In This Episode:

My Suburb Research Course

CoreLogic’s National Housing Market Update | July 2019

The Australian Government Makes Investors Wealthy Over The Next 7 Years

Phil Andersons Predictions For 2019, 2020 And 2021

Australia is in a Recession

A Conversation With Steve Keen: Part One – The Debt Problem

A Conversation With Steve Keen: Part 2 – From Central Bankers To MMT

Recommended Videos:

5 Things Holding You Back From Investing in Property

Australian Property Market Update – June 2019

Transcription:

Ryan 0:00
Hi, and welcome to my Australian property market update for July of 2019. And what I want to ask in this episode is, is Australia actually primed for a season of growth? Whether that be short term or long term growth? This is not a question that I thought I’d be asking this early in the year. Obviously, we’ve been seeing declines for over 18 months now. But Sydney and Melbourne actually saw some growth. And there’s been a lot of changes happening in lending as well as in the government, that may be early signs that the market is primed for growth. So what we’re gonna do in this episode, as we always do, is look at the data that corelogic puts out about the Australian property market, go into details in the cities and how they’re going as well. And we’ll also talk about some other helpful resources and helpful videos that I’ve watched over the month, which I’ll link up down below. So looking at the nation as a whole, we can say that in the month of June, the Australian property market declined by 0.2%. Now, this was the smallest decline since back over here in March of 2018. So ever since December 2018, we’ve been seeing a slowing in this rate of decline, which I’ve been talking about. Basically, we need to see that decline needs to see it go to zero, in order to then start having positive growth and obviously, going to zero and having positive growth doesn’t guarantee that that’s going to continue forever. But that’s a trend that we want to look for. And a trend that we are continuing to see now Sydney and Melbourne actually grew in the month of June, which is really interesting. And some other capital cities actually went backwards. And so it’s interesting to see that as well. So we can see here the month a month change for the five largest capital cities. And you can see Sydney here grown by 0.1% and Melbourne growing by 0.2%. But you can also see Brisbane, Adelaide and Perth or declining in that same month. So what exactly is it that causes Sydney and Melbourne to rise when other capital cities like Brisbane, you know, it’s still in the decline. So that’s something that we’re going to look at. so here we can see the month or month change in dwelling values for the different capital cities, we can see that Sydney and Melbourne as well as Hobart have actually increased in the month of June with Brisbane, Adelaide, Perth, Darwin in Canberra on the decrease with Darwin in Canberra, decreasing the most by 0.9%. So a lot of changes have happened over the last couple of months for us to start saying positives in Sydney and Melbourne liberal got into government, which meant the negative gearing changes that labour wanted to bring in which likely would have had a dampening effect on the market didn’t come into place. We’ve seen a rate cut in June, we’ve seen another one in July, which isn’t represented in this data. We’ve also seen some easing in the lending standards that started to come in in June as well. whereas previously, the lenders had a fixed interest rate that they were to measure people’s serviceability against that interest rate is now more up to the banks. And they do have some parameters around how they do that. But that has been relaxed there. There’s also speculation that in the future when it comes to lending requirements and the analysis that banks have to do on individual lenders and what their expenses are up there speculation that they that may get relaxed over time as well, making it easier for people to get money. So we’ve got liberal coming in. We’ve got drops in interest rates, we’ve got easier lending happening, which overall is improving sentiment and helping the market now whether or not you agree with this and whether or not I agree with this policy for the nation that is not necessarily up to us to decide. But it’s up to us to look at Okay, what is happening and how can we work with this? And how can we make decisions for ourselves and our own portfolio based off this information. corelogic are also saying that in a positive sign, it looks like monthly sales, or the volume of sales of property has potentially found a flaw. And as we can see in this graph here, it looks like it has found a flaw over the last quarter or so we’ll have to watch that to see that trend continues. But they’re also saying that that is roughly in line with the flaws that occurred in the other market retracements. So we can see in 2011 here as well back in 2008. You can see that these are at a similar level to back then auction clearance rates are also trending upwards. Now this is something that you can look at in Sydney and Melbourne where auctions are way more popular than in other capital cities. It’s not as useful in every single capital city. But as you can see, the auction clearance rates for Sydney have been on this upward trend and auction clearance rates for Melbourne have also been on an upward trend as well. So there’s actually a lot of positive signs that we’re starting to see now. So before we jump into the individual cities and how they’re performing, I do want to highlight some key resources that I have looked at over the month. So the first two are from Ben Everingham over Pumped on Property, which is a buyer’s agent that I work quite closely with. So he’s done two videos, one about what the Australian government is doing to make investors wealthy. And so talking about lowering interest rates, easy credit grants, happening, changes in taxation, as well as helicopter money. So the government handing out money to stimulate the economy. So talking about all the positive indicators that are happening there. So that is something that’s really interesting to watch, as well as this video where he talks about predictions for 2019 2020 and 21. Talking about Phil Anderson and his predictions, and this idea of the mid cycle slowdown that we have, if we go back here, you had the global financial crisis, which then we have a period of, you know, six to 10 years or something like that, where it goes up, and you have a mid cycle slowdown or a correction in the middle. But then the market continues to go up to when a bubbles and get silly. And then we have a massive correction. So Phil Anderson, as well as Ben here, talking about the idea that we may be in this mid cycle slowdown, rather than being right up here at the bubble point. So obviously, there’s a lot of different people out there with different opinions, there’s no crystal ball. But that’s a really interesting one to watch there. And he does give some timelines here, so mid cycle slowdown from 2019 to 2021, then seeing the growth 21 to 24. And then seeing the bubble 24 to 26, with the correction happening sometime around 2026. So no one has a crystal ball. But that’s a really interesting one to watch, and a really interesting framework to work with as well, which then leads me into this one conversation with Steve Cain. Now I interviewed Steve keen, probably three or four years ago about the Australian housing bubble and how that might crash. Steve Cain has been seen as a doomsday er, and has talked about, you know, the market correcting up to 40 or 50%. I really do like his analysis. And I like the way that he looks at things. But it was actually really interesting to watch this, because Steve Kean talks about Okay, in the near future, are we going to see prices wobble a bit? Are we going to see them grow? Or are we gonna see them decline. And so this is from an interview with Martin north. And again, I’ll link up to the video down below, as well as Martin North channel, which I highly suggest you subscribe to. It’s a really great channel. But I’ll just play what Steve Cain says here.

Steve 7:39
So I think there will be a bit of a wobble because with the rates being dropped by the RBI going to panic motorist rescue, with Morrison at the helm, he will do anything he can to rescue the housing bubble. But at the moment you’re trying to rescue it, when we’re carrying a debt level of 120% of GDP for households. It might rise a bit for a while that will give you a positive credit boost and the accelerator will come seriously positive for a while. It can be awful while but we’re not going to carry much more than 125% of GDP is the debt level. So I’ll see reaching that peak, and then it reaches a flatline, then credit demand disappears, then the accelerator turns negative and back down again. So a little little bubble potentially, but it’ll run out because if you are going to achieve rising house prices, you must have ultimately rising household debt. And we’re already number two in the world, we might take out the one plus the Ozzy Ozzy Ozzy and beat the Swiss ua can’t beat Federer tennis, but we can beat the Swiss at household debt, and then down again.

Ryan 8:38
So that was really interesting to hear Steve keen talk about that analysis and the potential for the property market to rise in the short term. But talking about the Australian household debt to GDP, as you can see here, the red line of Australia being the second highest in the world there. So talking about all of these things that are happening could lead to growth in the property market. But is that sustainable? And so that’s the question that Steve puts out is that potentially it’s not sustainable, given how high our household debt is. So something really interesting to consider, obviously, I’ll leave it up to you to look into these resources in more detail, and make your own assessment as to what you think’s going to happen. But this was, I guess, these resources, as well as looking at the market and the way things are going and the changes happening has led me to ask this question, are we actually in for a run of growth in the Australian property market in the near future, so it’d be really interesting to watch and to see where things go, whether it’ll bubble just for a little bit and then drop or if we’re in this sort of mid cycle slowdown. And we’ve got a good solid run here of another 567 years of growth in asset prices in this conversation with Steve Cain or may have been the next one only counterpart to as well. Steve talks about quantitative easing, which is the printing of more money. So when governments print money to bring it into circulation to basically stave off depressions and to stave off deflation of the currency. And he was saying that what happens with quantitative easing is that it inflate asset prices, and makes the people who own assets or own property and stocks rich are because it inflates those asset prices. And so that’s a really interesting thing to think about as well, because there was this video on Australian being in like a technical recession, or recession per capita. So not technically in a recession, because we’ve got migration helping us out and keeping us in the positive, but per person, we are actually in a weaker economy. So with Australia, potentially going into a recession, the government wanting to avoid that potentially doing quantitative easing, will that then inflate asset prices more so definitely a lot to think about when it comes to the economics of this sort of stuff. Now, let’s go ahead and jump into housing prices. So Sydney dwellings rising 0.1%, over the month of June, which then takes the annual rate of decline under 10%. Again, it was over 10% for a while there. So in the Sydney market, we saw units grow by 0.3%. And houses actually remained flat. Now, obviously, over Sydney, you’re going to have to look at individual suburbs as well, and different suburbs are going to outperform others. So in Sydney, you’ll see some suburbs that are growing some suburbs that are declining. And that’s going to be the same with absolutely every single city that we’re looking at. So if you are considering investing, you need to do your suburb research, you can’t just work off these averages. Because you’re not buying all of Sydney, you’re buying one house in one street in one area within one suburb within one larger region within the city. So you really need to do your suburb research and to understand which are going to be the highest performing suburbs, if we are going into this phase of growth. Or even if we’re going to continue to wobble for some time you want to invest in those high quality suburbs, I do actually have a course on how to do that select research. So that’s something that you want to learn, go to onproperty com.au, forward slash suburb. And I’ll leave a link to that course down below. One of the things that you want to look at or two things is time on market and vendor discount both the number of this as well as the trends in it. So if we look at Sydney, I’ve been tracking this for some time. Now, we’re looking at this Excel spreadsheet here, we can say the days on market here in Sydney, gone from 74 to 62 to 50, little bounce back up to 54. And vendor discount over the last four months has gone from seven point 10 to 6.9 to 6.7 to 6.4. So vendor discount, definitely moving on that downward trajectory, days on market have moved in a downward trajectory with a little bounce back up. But obviously, it’s still higher than they were a year ago. So you want to look at the trend. And so we can see the downward trend, which is good. But you also want to look at what the numbers are. And are they healthy days on market 54 does not indicate an extremely hot market looking down at Hobart about a year ago, you’re looking at nine days on market 1112 days on market that indicates a really hot market with vendor discount around that 3.4%. So really interesting to see that continued trend in Sydney. going downwards looking at Melbourne, we can see that it went from 61 to 43 to 44 to 47 has the days on market kind of leveled out there, that’ll be something to watch and vendor discount going from 6.6 to 6.2 to 6.3 to 6.4. So as you can see, Melbourne was kind of doing better than Sydney earlier on, which is interesting because Sydney kind of led Melbourne by about four months or four months earlier than Melbourne. So let’s jump in and look at the Melbourne market which we can see was up 0.2%. So units led the charge there again was 0.5% growth in units and 0.1% growth in houses in Melbourne. And so we can see that over 12 months down 9.2% three months down 0.6%. Again, this is just the start of the upturn. So it’s really going to be really interesting to watch if this upturn does continue, and we already talked about the days on market and vendor discount, they’re looking at Brisbane core logic say despite lower mortgage rates and improves sentiment nationally, the Brisbane housing market is yet to show any signs of moving back to positive growth with both house and units valued down over the month with houses falling 0.5% and units down or 1%. So the softer conditions have been heavier across the Brisbane most expensive quarter. So the more expensive a quarter of properties are quarter mile of properties were down 3.2% over the past 12 months while at the more affordable end of the market the values are down a smaller 1.9% so we can see here three months of brisbane down at 1.4% i think it has 0.6% reduction over the month of june let’s go back and have a look we can see presume was down 0.6% over the month of june their time on market is 60 days of vendor discount is 4.8% so if we’re looking at brisbane here we can see vendor discount or going from 4.8 to 4.7 to five to 4.8 so kind of hovering there no clear trend and days on market 68 to 60 to 55 back up to 60 maybe potentially a slight downward trend there but not quite clear it’s going to be really interesting to watch what happens to the brisbane market again i say this in every episode but given brisbane didn’t have the run out that sydney and melbourne had but it does seem to have strong fundamentals i find it very intriguing that brisbane is going backwards while sydney and melbourne is going forwards core logic does talk about sydney and melbourne having the most robust economies in terms of job spread and jobs that are available and they talk here about jobs growth being the highest in new south wales and victoria over the last 12 months with queensland being at 1.9% northern territory being at minus 6.6% and then unemployment rate as well you can say that new south wales and victoria had the lowest unemployment rate so core logic speculate that this may be why sydney and melbourne have bounced back while the other capital cities haven’t so brisbane will be interesting to watch adelaide has been a pretty steady performer over the last quarter and last 12 months with not seeing a huge decline remember sydney and melbourne have declined about 10% annually or just under that 10% adelaide has stayed mostly flat with a decline of 12 months of 0.3% over the last three months it’s declined 0.4% looking at the time on market and vendor discount of adelaide we can say it’s gone from 54 days down to 43 with a bump back up to 46 and we can say vendor discount is actually on the increase so gone from 5.2 up to 5.3 to 5.5% there so i can’t really see a clear trend in those two stats in adelaide you would need to look at more more data points in order to get an idea of what adelaide is likely to do looking now at perth there’s no real clear positive indicators for perth down 0.7% month on month down 9.1% over the last 12 months down nearly 20% since its peak back in 2014 personnel showing the lowest median house value among the capital cities and the third lowest meaning unit value after darwin and adelaide but they’re saying despite such affordable housing the missing ingredient in a housing recovery remains the weak economic conditions across western australia so they’re also saying that despite ongoing weakness in the housing values rents out 2.5% over the last 12 months did they say over the past 12 months which is supporting a consistent rise in rental yields which attract the highest level in four years so really interesting to see in perth that while the market is suppressed and declining that rental returns have been going up and average rents have been going up in the area looking at hobart now hobart grew a little bit as well with sydney and melbourne of 0.2% i did kind of think that hobart was at its peak and was going to decline this hasn’t really changed my opinion on that now i could be wrong but saying just how much hobart grew i find it hard to believe that hobart is going to go through another massive growth cycle and as we can see that annual growth trend has trended from just over 13% in early 2018 and is now at a current annual rate of 2.9% here and over the last three months we can see it’s down 1.1% looking at the time on market some of the healthiest in the nation at 30 days and 3.8% but comparing that to a year ago you can see that a year ago is only 12 days on market which is crazy low and 3.4% vendor discount so looking at how about here in 2019 moving from march to april may to june we can see that there’s actually been a slight decrease in the days on market from 34 down to 28 back up to 30 and vendor discount was hovering around 4.3% and has dropped to 3.8% so who knows like this trend is looking at that too but looking at the history of hobart and seeing the run up that it had can this continue you know i’m not really sure there so you know you make

your own opinion on that one now on to darwin look darwin’s not looking great either down 0.9% in june so having the largest decline of any capital city along with canberra now down over 30% since the market peaked back in 2014 so when people like steve cain are talking about 40% drops in markets it’s not actually unheard of darwin is down 30% that’s not too far from 40% and as you’ll see here the unit markets want the brunt of the downturn with unit values actually down 41% so when you hear these economists talking about this shyan housing dropping 41% is it possible what we’re seeing unit values dropped 41% in darwin and housing values are down 25% so this also shows you when you’re investing in turbulent times which asset class you pick what type of property you pick what market what suburb you pick is going to be so important as to how much of a decline you see because not the whole economy or the whole australian property market is going to drop it’s a different areas would drop more than others and so obviously you want to be in the area that’s dropping less and ideally not dropping at all so that’s where market research and survey research comes in again i’ll link out to my course on suburb research down below or go to onproperty com au forward slash suburb looking at time on market 64 days vendor discounts 7.6% so as you can see these are the highest in the country so highest days on market with perth being the second highest and then the highest vendor discount as well the trend there also is you know kind of positive in days on market from 76 moving down to 64 vendor discount 7.8 went down to 7.1 now back up to 7.6 so no clear trend there maybe slightly positive but looking at how bad these numbers are compared to the rest of the nation do i think darwin is going to grow in the next month in the next three months given that it’s still going down so quickly unfortunately no i don’t really see that happening in the darwin market but again i could be wrong you go ahead and make your own analysis lastly let’s look at canberra so down 0.9% for the month which is really interesting given that it has held steady and even been growing over the last 12 months so if you look at 12 months it’s at 1.4% three months it was previously up i believe but it’s now down to 0.7% so a big drop there in the camera market looking at days on market 50 days on market vendor discount of 3.1% and we can say this vendor discount is actually trending up from 2.7 up to 3.1 and days on market has gone from 56 down to 40 to 44 up to 50 so i don’t know if this is skewed and not as accurate because of the size of the market being smaller but yeah no clear trend there in the camera market this is something really interesting to look at as well it’s the dwelling value to income ratio so what is the dwelling value compared to the income of the region so we can see that sydney and melbourne are still some of the most unaffordable cities at 8.4 times the annual income of people and 7.6 times their annual income in melbourne hobart is also looking quite high at 6.7 and then you’ve got adelaide next at 6.3 brisbane at 5.8 then you’ve got perth at 5.2 canberra at 5.1 and darwin at 3.4 darwin obviously being the most affordable of the areas but not necessarily with the best economic conditions core logic then goes on to say that tight credit conditions are the new normal and this is going to continue to dampen market activity so even though we’ve got the lowering interest rates the changes that abra has brought in there still is a lot of scrutiny around expenses and so if you’re looking for a loan then there’s going to be more scrutiny in the loan application process which can have a dampening effect on new credit which as steve kean talks about can have a dampening effect on the growth in the housing market so we can see that

household debt here or owner occupied debt has kind of flattened out we can see continued decline in investor debt all the way back since early 2017 so basically if we start seeing these rise then and see this trend going up then that can definitely be a positive sign so despite all the other positive indicators we have this is a positive sign that we don’t have yet so we don’t see that growing trend of new debt in fact we see either a flattening or a decline of new debt. So there you have it. As you can see, the market as a whole is down 0.2%, we saw growth in Sydney and Melbourne and Hobart, we’re seeing some positives there from lowering interest rates to potentially easier access to credit to grants to changes in taxation with the government to things like helicopter money, which could boost the economy. So overall, there’s a lot of positive science, you also have to layer on top of that the economy as a whole, and whether or not you think Australia is in a recession, and struggling, because obviously, we’re lowering interest rates in order to stimulate the economy, which indicates that our economy isn’t where we want it to be. So how will this affect house prices? There’s so many things, so many factors to take into account. So I hope that I haven’t overwhelmed you with this hope that I’ve given you a little bit of insight into this. And, you know, do I think that Australian housing prices are going to rise in the near future? asked me one month ago, and I would have said No, probably not, we’re going to continue to see this turbulent fluctuating market potentially continue to see declines, albeit slower declines. Now, I’m not so sure the verdict is is kind of out at the moment. And I do want to see, I really want to see July’s data. So I’m really looking forward to next month’s update to see if we start to see nationally, some increase happening there. So things like the Brisbane market bouncing back, or that declining less as well. So it’ll be interesting to see how this pans out. I hope this helps keep your finger on the pulse. Whatever you do, however you choose to invest, make sure in this market, you have a clear strategy of how you are going to make money and how you’re going to have success. Capital Growth used to be the way that everyone invested in Australian property and made money. As you can see, for the last 18 or 20 months, trying to make money through capital growth has been very difficult, if not impossible, in most markets. So yeah, be very cautious if that is your only strategy and only way of making money because we are still in turbulent times. So you want to have a clear strategy of how you’re going to get from where you are now to financial freedom by taking, you know the risk that is in line with your risk profile. And ideally having multiple ways to make money in the market from ideally getting some growth by choosing the right market in the right cycle, choosing the right suburb choosing a great property as well as manufacturing growth. So buying under market value purchasing a property where you can manufacture growth through doing things like a renovation or minor development on the property. Or maybe you manufacture cash flow on that property through doing something like building a granny flat and getting two incomes coming in so that you’re in a positive cash flow situation. And you can pay off that debt and you can weather any storms that come or if the market goes up, you’re getting cash flow, and you’re getting capital growth. So be very clear on your strategy. And if you want to hear more about the to property to financial freedom strategy, go to onproperty. com. au forward slash two properties. I will link up to that in the description down below. And you can get a cheat sheet over there explaining how you can get cash flow in a capital city and hopefully get that long term capital growth. Thank you so much for tuning in. I’m going to link up to an episode that I did talking about the five things holding you back from investing in property. So go ahead and check that out. And I’ll also link to last month’s market update where we’re starting to see those positive signs but I was very unsure as to what was going to happen. So go ahead and check out one of those two episodes. Otherwise until next time, stay positive