{"id":7274,"date":"2016-03-11T01:00:18","date_gmt":"2016-03-10T14:00:18","guid":{"rendered":"http:\/\/realestatetalk.com.au\/?p=7274"},"modified":"2016-03-11T01:00:18","modified_gmt":"2016-03-10T14:00:18","slug":"property-prices-always-go-up-in-value","status":"publish","type":"post","link":"https:\/\/channels.realty.com.au\/realtytalk\/property-prices-always-go-up-in-value\/","title":{"rendered":"Myths: Property prices always go up in value – Andrew Wilson"},"content":{"rendered":"

 
\nIn today’s show Dr Andrew Wilson<\/strong>,\u00a0\u00a0the senior economist at the Domain Group,\u00a0takes a look at the suggestion that property prices always go up. Well we know from recent times that is not always the case, so how can you pick the cycle?
\n <\/p>\n

Transcript:<\/strong><\/h4>\n

Kevin:<\/b>\u00a0 I\u2019ve been accused over the years of pumping up real estate prices \u2013 if that\u2019s even possible. One of the things that I have said in the past is that property prices go up and down. Do they always increase in value? That\u2019s one of the myths we\u2019re going to have a look at now. My good friend Andrew Wilson, the senior economist at the Domain Group joins me.
\nAndrew, good morning.
\nAndrew:<\/b>\u00a0 Good morning, Kevin, my good friend.
\nKevin<\/b>:\u00a0 Andrew, do property prices always go up in value?
\nAndrew<\/b>:\u00a0 It\u2019s all about the timeframe, Kevin, isn\u2019t it? We do see property prices wax and wane, and it also depends on the nature of the market. Capital city markets, of course, have significant demand and supply drivers that keep them ticking been taking over through the cycles and over the longer term.
\nHowever, smaller regional markets can be exposed to significant changes in those supply and demand dynamics, particularly in relation to the performance of local economies. I think regional markets that are exposed to perhaps a single economic driver are those that are most vulnerable for prices to shift and for actual downward pressure on prices over time.
\nLook, the whole genesis or the basis of property price growth is supply; there\u2019s demand in terms of construction. I think that we\u2019re always a country that never has enough houses really in terms of the big picture going forward.
\nEven though we\u2019ve seen a spurt in apartment development recently \u2013 and that\u2019s a positive for employment generation and economic growth \u2013 I think even over time those shorter term oversupply scenarios are soaked up. I think it\u2019s because we are basically a country that has a small number of large urban centers that we crowd into. I think that always means demand is pushing ahead of supply over the longer term, which keeps prices ticking upwards.
\nKevin<\/b>:\u00a0 You mentioned there about supply and demand. I\u2019m just interested to know about the tipping point. When does a market move from being undersupplied to being over-supplied? What are the indicators there?
\nAndrew<\/b>:\u00a0 Certainly, it\u2019s a continuum. It depends what point of time you take your snapshot in terms of is it over-supplied or under-supplied or balanced? Developers always look for opportunities whereby supply can match the perception of where there are high levels of demand. Particularly with high-rise development, developers have to take a longer term view because of the very nature of high-rise development and significant numbers of new product coming into the marketplace, which will move ahead of demand.
\nWe do see and we\u2019ve seen markets where over time these short-term over-supply scenarios are soaked up and you see prices growth resuming. But they are the key indicators of an over-supply \u2013 and that\u2019s falling prices and falling rents.
\nKevin<\/b>:\u00a0 Is there a point in time in terms of stock levels where a market goes into over-supply? It all relates to supply and demand and that leads onto the number of sales. In a particular marketplace, is there a certain volume of stock that would indicate that a market is going to get some downward pressure on prices?
\nAndrew<\/b>:\u00a0 Again, these are short-term dynamics. We only have to look at the Perth and the Darwin markets to see the impact of, firstly, the surge in fly-in, fly-out workforce through the mining burns, where there was a significant demand from a mobile workforce for housing, which pushed up prices, pushed up rents. Now, when the mining boom ended that fly-in, fly-out workforce also ended, and then we did see much higher vacancy rates and falling prices. Again, over time with population growth and economic revival, those things do tend to balance out.
\nWe\u2019ve seen that particularly in the Perth market where that\u2019s starting to stabilize now after a period where rents and house prices have fallen because of a significant reduction in demand, which was, as mentioned earlier, a reflection of the exposure of the Perth market to one particular strong economic driver, and that was the mining industry.
\nBut other capital city markets \u2013 Brisbane, Melbourne, Sydney, and even Adelaide and the smaller markets, Canberra and Hobart \u2013 don\u2019t have that same exposure to a single economic driver. That means that they tend to adjust or don\u2019t tend to have the extremes of outcomes that markets have when they are just a one-trick pony in terms of what\u2019s driving economic activity.
\nKevin<\/b>:\u00a0 You talk about extremes in marketplaces. Sydney would have to be the classic example of extremes. Not just in recent times, but we\u2019ve seen it over the last few decades where prices in Sydney will escalate phenomenally and then they\u2019ll go into a massive downturn. What has actually caused the increase in the Sydney market in recent times, Andrew?
\nAndrew<\/b>:\u00a0 There were a confluence of factors. It was almost a perfect storm. It started in 2012 when the state government changed the stamp duty concession for first-home buyers. We saw a rush of first-home buyers into the market. They purchased established properties because established properties at that point were still eligible for the stamp duty concession. Then that activated change-over buyers that first-home buyers had purchased from. It was like a ripple effect in a pond.
\nThen along came lower interest rates and it just escalated, and prices growth was a product of those who owned their own homes trading up through the various price levels and regions and pushing prices up because they could, because interest rates fell to the lowest level since the 1960s. So that gave them the capacity to keep pushing prices up.
\nThe other part of that perfect storm was investors. Investors got in on the action and they created their own energy. Prices growth attracted more investors, which pushed up prices, attracted more investors.
\nThe thing that kept that investor market taking over in Sydney was a shortage of rental stock, a shortage of housing, which kept pushing up rents in line with prices growth, kept yields quite reasonably stable, even though they did start to fall when prices boomed. But it was still an attractive proposition, particularly that strong prices growth, and the low vacancy rates that kept investors interested.
\nA perfect storm in Sydney, but as we\u2019ve seen recently, Sydney prices growth has certainly come back to the pack and, in fact, has fallen.
\nKevin<\/b>:\u00a0 Will it continue to fall in your view?
\nAndrew<\/b>:\u00a0 This is the big question, isn\u2019t it? We saw the sharpest fall over the December quarter in Sydney\u2019s history, down by 3.1%. Now, confidence is certainly impacted in that Sydney market. Buyers and sellers will sit on the sidelines until there\u2019s perhaps a clear indication of when the market has bottomed out.
\nBut yields are now rising in Sydney. I think that the underlying fundamentals in Sydney are very strong \u2013 a strong economy, shortage of housing, strong migration. I think that will get the market up and running sooner rather than later. But there\u2019s no doubt that double-figure prices growth of the past three years is now certainly an ancient and historical factor that is unlikely to be repeated any time soon.
\nSo a much more moderate price outcome for Sydney this year. In fact, we may just see something like 2% or 3% prices growth following a near-15% result last year.
\nKevin<\/b>:\u00a0 Always good talking to you. Dr. Andrew Wilson, senior economist at the Domain Group.
\nAndrew, thanks for your time.
\nAndrew<\/b>:\u00a0 Thank you, Kevin.<\/p>\n","protected":false},"excerpt":{"rendered":"

  In today’s show Dr Andrew Wilson,\u00a0\u00a0the senior economist at the Domain Group,\u00a0takes a look at the suggestion that property prices always go up. Well we know from recent times that is not always the case, so how can you pick the cycle?   Transcript:…<\/p>\n","protected":false},"author":176692471,"featured_media":6514,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[34,10,11,13,17,25],"tags":[101],"class_list":["post-7274","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-finance-topic","category-kevin-turner-sponsored-channels","category-kevin-update","category-latest-story","category-property-investment","category-sponsored-channels","tag-podcast"],"yoast_head":"\nMyths: Property prices always go up in value - Andrew Wilson - Realty Talk<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/channels.realty.com.au\/realtytalk\/property-prices-always-go-up-in-value\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Myths: Property prices always go up in value - Andrew Wilson - Realty Talk\" \/>\n<meta property=\"og:description\" content=\"  In today’s show Dr Andrew Wilson,\u00a0\u00a0the senior economist at the Domain Group,\u00a0takes a look at the suggestion that property prices always go up. 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