There is lots of chatter in the media about a property crash. Property prices are either booming or busting – both scenarios are good for selling papers and creating click bait. Our local property market has certainly cooled from last year’s highs. That is basically a good thing. The level of demand over the last couple of years was not sustainable.
What The Experts Say:
APM CoreLogic/PriceFinder is a national data service to the real estate industry. According to their stats, house prices in Byron Bay (postcode 2481) reduced 0.8% in 2018. In December 2017 the median house price was $1,650,000 and then dropped to $1,637,500 in December 2018. I don’t think that is worthy of panic in the streets. Mullumbimby and Brunswick Heads (2482) has reduced 4.4% with a median price of $1.08M. Bangalow (2479) showed a relatively healthy rise of 6.2% with a current median of $1.025M.
Media outlets are keen to quote the major Sydney and Melbourne market, which definitely are experiencing the worst downturn since the GFC. Sydney house values dropped 10.9% last calendar year. Melbourne dropped 10.6% during the year as well.
Most analysts are predicting further falls. Analysts at Morgan Stanley are saying the “peak to trough” downturn could go to 15- 20% instead of the already seen 10%. The peak in the capital cities was in mid-2017.
AMP Capital’s Shane Oliver is saying Sydney and Melbourne could fall up to 25%. He said “A 25 percent plunge in Sydney and Melbourne may seem like a crash but given the extent of the prior gains it’s arguably not. But a 25 percent national average fall would probably be interpreted as a crash”. Dr Oliver concludes, however, that “the risk of a crash cannot be ignored given the danger that banks may become too tight and that investors decide to exit in the face of falling returns”.
If property values do decrease to this extent, it will be the biggest falls since the 1981-83 decline. National property falls were 9% during the GFC in 2008. The most pessimistic economist, Scope Super industry panelist Stephen Anthony, is seeing another 14.5% fall this coming year.
More pressure will be on the Reserve Bank to cut rates further this year. Even below the present historic low of 1.5%. The banking royal commission could also have further implications for house prices. It will be interesting to see whether the Haynes recommendations will be enacted. It looks like it is going to be turbulent for a while longer. It would certainly be interesting to see a few Banksters in the dock. The idea of having lenders pay mortgage brokers fees upfront is a wrong move. This will kill the mortgage broker industry, which is one of the only credible competition to the major banks. The card the banking industry will play is “don’t send any of us to jail as that may cause a credit squeeze and the economy will tank.” Of course, there is no connection but its politics, not logic.
Currently, the regions, as well as lifestyle destinations like Byron, are holding up fairly well. How long this will last is anyone’s guess. Byron Bay usually reacts 12 months after the southern cities but this time it is not following that trend. My belief (not justified with any science or data) is that the Northern Rivers will sustain prices for this year at least. The depth of demand and the limited supply of new stock makes this region and especially postcodes 2479 – 2483, a bit special and different and it can withstand most shocks. I recently made this short video (4 minutes) available online where I talk about what could happen in 2019. Have a look here.
Politics and Prices
Of course, the election is another unpredictable element that can affect property prices. Get ready for the coalition to launch a massive scare campaign with the removal of negative gearing being the main bogey man. It’s possible that Labor (assuming they get in) may dodge a bullet by having most of the property falls already booked before they introduce the policy.
The worst case scenario for them would be to do it on a property price high and then have a downturn. This is what happened during the 80s under Bob Hawke who also removed negative gearing. That government choked and quickly reinstated it during the price slump previously mentioned. Cool heads at the time were of the opinion that negative gearing was not the blame. Negative gearing should be removed as it is an impost on First Home Buyers when they have to compete against cashed-up investors benefiting from a tax advantage. The tax deduction should only be used for new developments – as it was originally intended.
Relax, Don’t Panic
Presently the market in our area has moved from frantic to firm. In the cities, it has moved from FOMO (Fear of Missing Out) to FONGO (Fear of Not Getting Out). This is market capitalism at its most primal. City investors with highly leveraged property portfolios should get out of the kitchen if they can’t stand the heat. Only a small percentage of my business deals with investors. I am happier helping people who want a home, community and a sensible, relaxed lifestyle. I think that’s something to invest in.