The mass media is posting some scary headline numbers (…again!), but scratch beneath the surface and it’s almost a good news story.
The papers were running the headline last week about house prices falling for the first time in 6 years.
The actual peak was some months back now, but for the first time in 6 years, the year on year change has gone negative.
As a headline number it suggests that the property market is on the slide, so I just wanted to pull it apart a bit to get the full picture.
First up, I’m not going to try polish a turd, the property market is getting softer. That’s mostly due to the tighter credit environment we’re seeing, along with some cyclical pay-back in Sydney and Melbourne.
(It wasn’t entirely unexpected.)
But there’s never just one story in the Australian property markets. And it’s interesting when we dig below the surface.
Let’s start with this chart here. This is an interesting one that I needed to spend a bit of time getting my head around, but it tells an interesting story. It’s from Westpac.
What this shows is what’s happening in the Australian property market at any point in time. So if your house and your suburb is falling in value, then you end up in the red bars. If your house is growing more than 10% a year, then you end up in the grey bars.
If it’s growing between 0 and 10%, then you end up in the white section in the middle.
So you can see here the cycles in the market. There was a flare of red in 2009 after the GFC and again in 2012.
There was a flare of grey in 2003 during that housing boom.
And what we’re seeing right now, is that the grey bars have all but disappeared, and the red bars are trending up – though not in a massively troubling way yet.
But let’s look at what that’s saying.
Looking at the red bars, it says that about 30% of properties are losing value right now. That’s probably fair, especially when you remember how large the populations of Sydney and Melbourne are right now.
It also says that the share of properties growing more than 10% pa has gone to about 5% of the market. Again, that’s not unexpected. Anything over 10% is positively booming, and overall, this isn’t a boom market right now.
(That said, one in twenty houses are still posting double-digit growth. They’re the ones being bought by my students!)
But look at what else this chart says. It says that the share of properties growing between 0 and 10% is currently about 70% of the market.
That is, seven out of ten properties in Australia right now are growing in value at a rate of between zero and 10% per annum.
Suddenly, that’s not sounding all that bad. It’s actually sounding quite good.
Because as an investor, you can work with that.
I mean you should be buying well, and buying properties with opportunity, but even if you’re not, if you can book growth of between zero and 10% (and particularly at the higher end of that range!), then you should be fine.
It just goes to prove that old adage – there’s money to be made in every market.
So keep it in mind. We’re going to see a string of negative headline numbers going forward from here. It’s locked in.
But through all the wailing and sobs, remember that most the market is still growing, and some of the market is still booming.
You won’t see that on the 7 O’clock news.