What happens when property markets correct? – Michael Yardney

What happens when property markets correct? – Michael Yardney

What happens when property markets correct? Not crash but correct because as Michael Yardney, from Metropole Property Strategists, points out, that is what is likely to happen. In today’s show we talk about this.


Kevin:  Is Australia’s property market really a precarious house of cards waiting to topple? Well, there’s a lot of debate at present raging. Some say that the future for property is bright, while others suggest that the markets are set to crash.
Obviously, if you’re considering investing in property or about to buy a home, it would be really good to know who’s right – and history does actually teach us some great lessons. What can we learn from the past that we can take forward into the future?
Michael Yardney from Metropole Property Strategists has been looking at this for us, and he joins me.
Hi, Michael.
Michael:  Hello, Kevin.
Kevin:  Michael, what lessons can we learn from the past? The market probably isn’t always going to move forward.
Michael:  No.
Kevin:  There are times in the past where it has actually checked. What have we learned from that?
Michael:  Well, no, it’s not going to keep moving forward, Kevin. But I guess the first lesson is our markets are fragment. There’s not one property market. There’s where people get it wrong to start with.
Not only is each state its own state of its property cycle, but, Kevin, even within each state there are different market segments behaving differently. Some of them are geographic, some of there are different price points or different types of property.
The first lesson is there isn’t one property market, and we have to define more clearly where we’re talking about
Kevin:  You know, there might be another lesson here, too, Michael. Firstly, is there a bubble? And just because there may be a bubble doesn’t always necessarily mean that it’s going to burst.
Michael:  Well, some people say it’s a bubble because house prices are high and unaffordable to some. But you’re right, Kevin, that doesn’t mean it’s a bubble, and it doesn’t mean it’s going to burst.
I think we could take some lessons from what’s happened in the past, because it’s likely that the future will repeat itself in one form or another.
Kevin:  Has there ever been a time, Michael, where the market has checked?
Michael:  Well, the market’s corrected. If we want to be honest about crashing – in other words, where it’s dropped significantly, albeit for a short time – it was after the Second World War and during the Great Depression.
Our financial markets were very different then. The world’s circumstances were. In the 1940s, house prices dropped 17% over a twoyear period. But, Kevin, they jumped back and grew strongly afterwards. And you can understand during the war why that could happen.
Of course, in the Great Depression when unemployment was high, property prices corrected significantly, as well. But, Kevin, no one is suggesting there’s a depression on the horizon for Australia. Sure, our economy is slowing a bit, but it’s still the envy of most developed nations.
Kevin:  Michael, what’s happened at other times when the market has actually corrected?
Michael:  Corrected is what normally happens, and to understand what’s ahead, let’s have a look. Sydney was in a terrific property boom between, probably, late 1990s and the end of 2003, early 2004. It was one of the best performing property markets for that period of time; helped by the excitement of the Olympic Games.
But after this boom, the Sydney property market corrected. Kevin, it didn’t collapse. It just corrected. Property values dropped from their peak by about 9% or so, but, Kevin, it didn’t happen instantly, either – it took 23 months to play out – and of course, not all parts of Sydney’s property market dropped in value equally.
Again, if you look at what happened in Brisbane and Perth where values peaked in around 2008, they had a really good run in the middle of the last decade, but again, property price didn’t collapse. They just sauntered along for a while allowing fundamentals to come back into alignment.
Much the same happened in the 1990s. I know you and I lived through those difficult times, the recession we had to have after a huge property boom in the 1980s, and at that stage interest rates rose to 17%.
Kevin:  I know. Yes.
Michael:  But, again, properties didn’t collapse; they just flatlined for a few years as affordability, supply and demand, and all those other economic fundamentals caught up.
Maybe just going back in our memories, most of us will remember, not that long ago, property prices peaked in late 2010, and that was the last time the Reserve Bank pushed up interest rates to slow our property markets down. In general, in the capital cities property prices gently eased; they didn’t plummet.
Now, of course, if you’re looking at certain very specialized markets, like the mining towns, like the holiday destinations, Kevin, like some regional areas where there isn’t a lot of depth to the market by owner-occupies, yes, in those locations, property markets can drop in value significantly – and we’re seeing that. But in the big locations, Kevin, unlikely to have a crash.
Kevin:  Okay, Michael, thank you for your time. We will catch up and we’ll talk more about this in future shows, as well.
That’s for your time, Michael.
Michael:  A pleasure, Kevin.

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