Property experts could have called it too soon – Michael Yardney

Is it a time for some caution about the property market?   Has the market topped and is it likely to decline?  Questions on the lips of many investors and some concern being expressed by some of the country’s top market analysts.  Michael Yardney gives his thoughts.
Kevin:  Well, we’re hearing it now quite often that the property market has topped. Well, that’s what some experts are saying. Initially, some analysts at investment bank UBS called the top of the housing market just a few weeks ago, suggesting both market activity and price growth will now moderate.
CoreLogic joined in on that, and they made some comments that it may just be too early to make that sort of a call. However, they did say there is a note for some caution. Well, is it a time to worry? Let’s find out. Michael Yardney from Metropole Property Strategists joins me.
Michael, you’ve no doubt read these reports. What’s your take on that?
Michael:  One month’s statistics is a bit too soon to call the top, but Kevin, if we’re honest, we’ve really had an amazing couple of years in the real estate markets. It’s been a dream run for many investors, particularly those who’ve lived in Melbourne, Sydney, and to a lesser extent, Brisbane.
Money’s been cheap, the banks have been falling each other to lend you money, and as long as you bought at a reasonable location, that rising tide lifted all ships. But we are changing now. The conditions that drove those dramatic price rises over the last couple of years, they seem to be fading away currently, Kevin.
Kevin:  The question for you, Michael, is where are headed?
Michael:  Some commentators are suggesting that now with lower auction clearance rates and slower investor finance, that we’ve hit the top of the market. Now, sure, auction clearance rates have dropped a bit in the two big cities, Melbourne and Sydney, but they’re still in the 70% range, not the 80% range, and I don’t think you need to worry about it until it gets to maybe around the low 60% range.
I think what’s really happening is that we’re in for a period of more moderate price growth for the rest of the year, followed by a period of stagnation where prices are going to slow down, stop, and in some areas, drop a bit.
But Kevin, the sky isn’t falling and we’re not doomed, and property prices are not going to crash.
Kevin:  Michael, what’s going to drive the property markets now?
Michael:  On the macro level, it’s going to continue to be things like our economy, interest rates, availability of credit, consumer confidence, the world economic events, what the government is going to do if it fiddles with policies, and those external influences like political influences that make us either feel confident or not, and then digging down deeper at the local level where we live, it’s going to be related to our economic growth, our jobs, population growth, and of course, the old fashioned supply and demand always is going to be a big factor.
Kevin:  How big a player will finance be in this whole scenario, Michael?
Michael:  Kevin, I’ve been investing for over 40 years, and every property cycle I’ve invested through has eventually come to an end because of finance. In the old days, it used to be called a credit squeeze. Kevin, you’re old enough to remember when the government induced those credit squeezes and the banks just weren’t lending anyone any money. Then after deregulation, the Reserve Bank did it in a different way. What it did was hike interest rates, and every time it did that, it put an end to the cycle.
This time around, Kevin, we’re back to a credit squeeze. I’m surprised no one else has called it that. Maybe they’re not as old as me and remember that term, but ASIC has created those macro-prudential controls, so even though interest rates are low, they’re tightening the screws on certain people – on investors.
Kevin:  I’m just wondering, Michael, if this is such a bad thing, because the Sydney and Melbourne markets, that growth seem to me to be almost unsustainable.
Michael:  You’re right, Kevin. I much prefer having a credit squeeze in a low-ish interest rate environment, in other words, where the average person isn’t going to default on their mortgage, where businesses are not going to go bust, and it’s just going to slow the market more steadily than that blunt hammer of a very high interest rate environment that affects everybody. So you’re right, it’s actually not a bad thing at all.
Kevin:  Summarize this for me, Michael. What’s ahead? Give me the bottom line.
Michael:  I think ahead, we’re going to have a period of subdued economic growth. Our economy is doing okay, but it’s not going to boom along. I think jobs growth is going to remain fragmented, with most of the permanent new job growth happening in Victoria and New South Wales. We’re in for a period of lower inflation, so the culmination of all those things means we’re very likely to be in for a period of lower interest rates.
Consumer confidence is going to be fickle. When people are uncertain, they’re going to tend to stop spending, and we have local issues that are concerning us and overseas issues. I think finance is probably going to get a little bit tighter before it gets looser. Our population growth is slowing, and I think another factor that’s going to slow down these markets so that we’re going to head into a period of more moderate growth is less foreign investment.
Only recently, I’ve read that last year, there were 40,000 requests for the Foreign Investment Review Board for people from overseas buying Australian properties. This year, the forecast is for 15,000, less than half the number of foreign investors this year. That’s going to affect certain segments – those new and off-the-plan properties.
Kevin:  So the bottom line, Michael, is that we’re in for a bit of moderate growth?
Michael:  Yes. Like it or not, we’ve moved on to the next phase of the property cycle; you’re right. But obviously, there’s still going to be some overperformers and some underperformers, so you have to find the sort of property where the demographics, the people are still going to be able to afford to pay, where they’re going to have good jobs, where they’re going to have rising wages, and this is likely to occur in the middle ring suburbs of our big capital cities, Kevin.
Kevin:  An interesting insight there, Michael. Thank you so much for joining us today on the show. I appreciate your time.
Michael:  My pleasure, Kevin.

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