Is Australian Property About To Decline? May 2020 Update
With everything that’s going on with the virus, the lockdowns and social distancing plus government stimulus, how is this going to affect the Australian property market moving forward?
0:00 – Introduction
0:45 – Monthly change in dwelling values
3:10 – Australia is NOT one housing market
6:27 – Government bailouts
7:35 – What kind of recovery will we have?
8:30 – Decline in leading indicators
11:05 – Higher than expected vacancy rates
13:12 – What do I think?
it’s been a little while since I’ve done an Australian housing market update but with everything that’s going on with the virus with the lock downs with the social distancing a lot of people out there are concerned about the market if you own a property you may be concerned about what’s going to happen with that when’s the best time to sell if you’re looking at investing in the market you might want to pick your timing so I thought it would be a good time to sit down have a look at the data see what the data is telling us and have a think and a discussion about what may or may not happen in the future now obviously I don’t have a crystal ball I don’t know exactly what’s going to happen all I can do is look at the data and make my own assumptions and own speculations and you need to look at the data for yourself and make your own decisions – so here we have the change in the monthly change in national dwelling values and this is provided by core logic and a link up to their main monthly update video in the description down below if you want to check it out that’s where a lot of this data is coming from and so we can see that the property market actually showed some growth in April so even with the buyers happening even with the lock downs even with a lot of this stimulus not having come through yet into everyone’s bank accounts we’re still seeing the market grow which is really interesting but I do want to look at this trend and this downward trend so if we go back March February January December November we can see that growth rates peaked in November and we can start to see a bit of a downward trend here in the growth rates now I I actually kind of picked it which is really interesting and parries I want to do this update is just to have history of what’s going on and so if we go back to June 2019 I did a video of has the market bottoms yet and so I was looking at it thinking has the market bottomed and that was one month ahead of schedule I think the next ones here is Australia prime for growth in July and so that was where we actually saw the last month of decline in July and then I think yeah August the market started showing some growth so if we go back to that core logic video we can see that August we had our first growth and then we ended up on this with trends so I actually kind of picked it there and I’ve been talking about it for a while since back in January February about this trend in the market was still declining but at a slower and slower rate and now we’ve got the opposite happening the market is still growing but at a slower and slower rate and if we go back and look at 2017 we can see this trend again we can see the market growing but at a slower and slower rate until it turned negative and then if we go ahead and go back to 2015 we can see that the market was growing but it had this downward trend at a slower and slower rate and then we saw a short period of decline before it grew again so looking at this trend and looking at the past it does look like we may be in in for a period of decline of the Australian housing market which i think is really interesting and will be really interesting to watch now I do want to note that Australia is not one housing market there is so many different housing markets and the capital cities all perform differently to each other I would say if I look at this and look at what has happened in the past you’d look at an area like Hobart Hobart has had extreme growth and a massive run-up over the last couple of years Hobart is also one of the more exposed cities with the impacts of this virus so call logic talk about the percentage of their population that kind of works in hospital hospitality in the arts and tourism and they’re one of the more exposed cities and they’ve had a massive growth run-up Melbourne has actually hit its peak so remember Melbourne and Sydney peaked in 2017 then went through a period of decline of about 18 months Melbourne actually exceeded its 2017 values and actually peaked back in February I think it was and so Melbourne is actually higher than it was before we saw that big decline in 2017 and 2018 and so it’s really interesting to see that and so I look at Melbourne I look at Hobart and I think okay they’ve had these run-ups Hobart’s more exposed that’s not necessarily a good sign for that City as well Sydney and Melbourne see the bulk of immigrants and migration into those cities from international obviously international migration is going to go down as a result of all of this so then that exposes those cities more but then you look at something like Brisbane or you look at something like Perth now I put the client for a solid five years basically and the last six months has shown consistent growth and so I would argue and speculate that Perth actually reached its bottom potentially six months ago and is unlikely to go lower than that and if you look at Brisbane as well Brisbane is the city that has the most interstate migration so whereas Sydney and Melbourne a super reliant on overseas migration to grow their population Brisbane not as much Brisbane gets a lot of interstate migration so people moving from Sydney to Brisbane moving from Melbourne to Brisbane so that’s what puts Brisbane in a less exposed position Brisbane is also reported to be cheaper now than it was something like eleven years ago if you factor in for inflation so we didn’t have the big run ups that Sydney and Melbourne or Hobart had either so as you can see looking at wildly different property markets here and so while we will talk about the Australian property market as a whole if you’re an investor looking and getting into the market if you’re someone looking at selling there’s different markets with different risk factors and you need to take that into account so yeah I see the biggest risk in Sydney Melbourne Hobart and Darwin as well collage ik don’t seem to speak very highly of Darwin and the fundamentals in there and then I guess I’d be more bullish on Brisbane and Perth and I wouldn’t know enough about Adelaide in Canberra to really comment on that it’s also really interesting to see how many global bailouts there have been now this video doesn’t go through global bailouts but it does have a look at projected GDP somewhere in there but if you look at the globe bailouts things something about 10% of GDP if not more the Australian government has committed to these bailouts and to supporting people through things like the job keeper and the job seeker and so I was watching a really interesting interview with Ray Dalio who is a very famous and wealthy investor one of the most successful in the world and he was saying in this interview that markets often tend to bottom right before the government steps in and right before the government provides their stimulus packages that’s when you see the bottom of the market now I’m not quite clear who’s talking about the bottom of the economy the bottom of the stock market but I think it was really interesting too that he noted the impact of government stimulus on when a market will hit its bottom and obviously the Australian market has stepped in with a lot of different stimulus when it comes to the recovery period obviously that’s still very unknown with how this virus is going to play out what was largely predicted previously was what they’d call a u-shape recovery so the market bottoms out kind of hangs around at the bottom for a while and then slowly declines versus what’s called a v-shaped recovery which is a sharp decline and then a very quick bounce back there’s also an l-shaped recovery which is something like the Great Depression where it declines and it just stays at that low point for an extended period of time so while everyone was previously saying the most likely scenario is a u-shaped recovery now you’ve got people coming out and speculating that we may go through a v-shaped recovery so it’s still unclear at the moment how this is going to play out if we’re going to get a second wave or what’s going to happen there something really interesting to see is where is it a lot of the a lot of the indicators are down so number of valuation events you can see from March a massive decline in valuation events obviously you’ve got the ISA long weekend compared to east of 2019 over here but you can see that that trend is going downwards what other trends do we have to look at monthly sales as well has declined very sharply – really the bottom since back in 2000 going back before that so monthly sales are massively down which could have to do with not being able to open for inspections could have to do with that but also it seems like not as many people are actually going ahead and listing their properties for sale and so that’s a good indicator that we’re not gonna see a massively sharp decline in the property market because when you’ve got a flood of new properties for sale and no one to buy them then there’s price competition and it gets down but if you look here at the number of new listings now if we go back 2019 is the green one and I remember looking at this and it was much lower than previous years look at 2020 you know we were kind of on the rise up or a bit below 2019 still but now you’ve got this massively sharp decline in new listing so people aren’t flooding their properties onto the market that could have to do with government stimulus it could have to do with the ability for people to pause their mortgages through this or pause their payments on their mortgage now the thing that’s unclear obviously this is a good sign and this kind of delays the effect of everything that’s happening but what happens in six months time when that six-month period is up when the government stimulus runs out where people can’t pause their loans anymore it really depends on how the economy going at that point when all this stimulus ends and all of this help ends as to what’s going to happen to the market something that they talked about that we are very likely to see and I don’t think there’s a graph for it exactly that’s quarterly change with GDP forecast so they’re looking at it looks like three negative quarters so definitely Australia’s first recession since way way back in the 90s so our extended run of 27 plus years of no recession has probably come to an end now so looking like we’re going to have a recession for it looks like they’re predicting three quarters and then growth in the fourth quarter so at least three quarters of a recession definitely looks like that’s happening but also higher than usual vacancy rates and there’s a lot of things that are affecting yes so a lot of people have lost their jobs we know that a lot of people who lost their jobs are in things like tourism things like hospitality you’re looking at restaurants cafes bars clubs a lot of those people don’t necessarily own property but they do rent property so the fact that a lot of homeowners are still in a good position with their job and the people that lost their jobs are more likely to be renters than owners could be good for people still being able to pay their mortgage you’re not flood the market with properties for sale or distress properties for sale but what that means is people who are renting may struggle to pay their rents so you’ve got that issue you’ve also got migration and tourism having gone down significantly and then you’ve got a bunch of people who were previously air being being their properties out who are now going to rent them out full-time so there’s hundreds of thousands of properties that we use for air B&B those people don’t want them to stay empty so they might rent them from six to twelve months until the market improves or maybe even longer and then they can Airbnb them again but what this means is we’ve got a flood of this new stock to the market that was never previously available as well you’ve got issues with people being able to rent and so you’re gonna see increase in vacancy rates basically across the board by the looks of it so a lot more vacancy rates which means will be harder to rent properties and we’re seeing rent declines in a lot of different cities I think they talk about rent declines in Sydney I’m not sure if they really show it on the graph here but yeah they had decline in the value of the rents so I don’t know I guess that’s kind of it there was a good video here from Ben and Simon over at pumped on property who obviously I know them very well and work closely with them but they go and talk for about 45 minutes on a bunch of data points and what a bunch of the analysts are saying so that’s a really good video I’ll link up to that in the description down below if you’re interested but when I sit here and when I look at the statistics and I look at this decline what do I think like obviously I’m just one speculating I don’t know I don’t have enough data point to really make a prediction but looking at this decline that does not look healthy and means we could be in for a period of declining property values as I said Australia is not just one market it’s lots of different markets so I wouldn’t expect that to see the clients across the board and across every single capital city and so it’d be really interesting to watch it I would personally probably say yeah we’re probably in for a period of decline how long that decline last and how steep it is I don’t know if it’s going to be as bad as what we saw back in 2018 2019 currently the sentiment feels like maybe not it really depends on how well we recover from this virus and what effect the stimulus has and if and when people can go back to their jobs and if the economy bounces back and we really we need more time and more data to actually see how that’s going to play out but yeah really interesting to see six I’ll try and do another one of these in what’s next May June I’ll do another one in June and see where are at see the markets still growing or see the markets declining and maybe we’ll have more data there to talk about it but I think for some people this could be a really good time to buy but obviously you need to be one of those people that have a job one of those people that are in a stable industry that are in a stable financial position because what this doesn’t show you what this high-level graph doesn’t show you is that there’s obviously less buyers in the market as well instead of the ability to find a great property and to negotiate hard on that property to get a discount of that below the listing price there’s opportunities out there like that which can then put you in a good position and help you acquire a great asset so whether or not we’ve reached the bottom I don’t know but if you can acquire a great asset at a good price that’s going to set you up for long-term success depending on what you are and what your goals are now could be a good time for you so I’ll leave that up to you to decide if you do want help setting a strategy of how you can build your property portfolio then on property comm dot a you and you can learn more about our free strategy sessions over there as well as get way more information on how to research suburbs how to research markets and areas how to inspect properties negotiate how to create a strategy that can set you up for success so go to onproperty.com.au/free get to subscribe to the channel otherwise until next time stay positive