Patterns in the Australian Property Market

It seems many experts and national commentators have forgotten about some key patterns in the Australian housing market. These patterns have been mapped, tracked and documented for a long time. The two primary and most observable of these are thus:

• Our markets are counter cyclical and independent. This ordinarily means that as some states have falling markets, others are rising ones, and vice versa. We are never in sync. That seems to have been forgotten. Covid was the first time in recorded history all markets were on an upward trajectory at the same time, and at a fierce pace of growth too. This was courtesy of government intervention, primarily driven by federal government stimulus packages for residential house building that was matched dollar for dollar by state government in practically every state in Australia. this created an artificial market condition. Good analysts will know that Sydney and Melbourne markets were past peak on affordability metrics at the start point of covid. We just lurched them along with stimulus and other government intervention mechanisms and kept them moving. The thunder is coming now.

• A period of growth in a state market (typically 7-10 years) is followed by a period of decline (typically 5-7 years) in every state market. This usually changes (transitions) occurs when affordability reaches a critical transition point . Price growth in a market outstrips wages, and when the mortgage payments eclipse 65-70% of disposable income, markets star to fail. That the data. People are forced to sell up and moved move on, and when there are more people in the boat of needing to sell than looking buy, the deceleration in values gathers pace. This is a natural and normal cyclical occurrence and is well documented and observed by Australian hosing economists. a guaranteed fact – we don’t grow 10-20% PA for perpetuity – that is unsustainable rate more akin to cancerous growth, and anything other than healthy and manageable for a city.

Considering the above, its peculiar to me then to read articles about the “demise of the Australian housing market’, where commentators talk about our markets nationally, as if we follow the same trajectory, which has never been the case. These commentators are primarily looking at Sydney and Melbourne data on affordability and growth to weave doomsday stories. The underlying fact remains thus: the Australian housing market is a network system of interdependent parts (capital cities) that are related to each other due to being on the same big rock in the middle of the ocean. Everything else about them is vastly different, and that is to be celebrated.

Healthy growth rate diversity between regional centers 

Each cities growth is not directly proportional to any other and rarely has been (except for the Covid period). In fact, it’s often to the contrary; and healthy if they aren’t. It’s more common that one city’s median price going up is directly proportional to others going down, explained by the migration of our population around the country in the ever-present ebb and flow of families pursuing economic opportunity and the great Australian dream.

Each state goes through ever evolving cycles of economic and population growth and decay this occurs and circumstances change: industries transition or collapse, housing affordability tanks, new industries and infrastructure projects come online, mineral and resource demand and innovation creates new opportunities. It goes on and on, and this diversity is what sustains our prosperity. Don’t let any doomsday political analyst of economic commentator fool you on this. look at the data, be informed, segregate your markets, and understand how the interact with each other. They do somewhat, but in very intricate and indirect ways. They are not simple relationships, but if you understand them, you can harness that knowledge to your benefit.

Timing is as important as location. This in mind we are called to remember the old saying “what comes up must come down”; there is a summer and there is winter. In our opinion, WA is currently in for the long summer. We did our decade of decline. Most suburbs caught up to their 2013/2014 value levels last year, considering time value of money and real current value. That occurred in the first 3-4 years of uptick since the covid growth boom. The real growth starts now, for another 4 to 5 years easily, and will only be helped a few rate cuts which are almost certainly inbound.