June 27, 2019 by Dymphna

PROOF: Property markets next launch pad

Most people think the property market will fall further. But that’s not what the evidence says. Quite the opposite…

There’s a bit of a slingshot building in the market right now.

People always forget that this is how markets work. The seeds of price growth are starting to take root long before prices actually start growing.

But if you know where to look, you can seed the signs are there, and they’re actually looking pretty strong.

The first one that jumps to mind for me is the vacancy rate data. Now, if this was you’re vanilla-type market correction, and more price falls were on the way, you’d be expecting the vacancy data to be getting worse right now.

But it’s not. It’s pretty stable really. In fact, it actually got tighter in the last month.

The national vacancy rate was down from 2.3% to 2.2%. Not all that much to write home about, but at this stage in the cycle, it is definitely not consistent with prices falling all the much further.

And remember, at 2.3%, we’re still talking about a market that is, on balance, tight.

There’s also some interesting signs within that broader national picture. As SQM’s Louis Christopher says, Perth and Brisbane have seen a strong improvement in recent months.

“The standouts for me were the falls in vacancy rates for Brisbane and Perth. I think the rental market is decidedly turning in favour for landlords in these two cities. Both cities also recorded fairly strong increases in asking rents for the month.

Indeed, Perth is now recording a 6% rise in asking rents for houses over the past 12 months. With no expected material increase in new dwellings, I believe the rental market will continue to tighten from here for the two cities.”

And this is the thing: this tightening we’re seeing in the property market is only just getting going.

Because we know that construction activity has peaked, and we’re going to build less homes this year than we did last year.

At the same time, population growth remains very strong. We’ve just learnt that population growth for calendar year 2018 busted through the 400,000 a year mark.

That’s one of the highest levels on record.

And so with strong population growth being jammed into a property market where construction rates are already falling, obviously the market is going to get tighter.

Vacancy rates will fall, rents will rise, and prices will rise too.

And we’re already seeing the signs of that.

What’s more, we’re already seeing a pick up in selling activity. Auction clearance rates in particular have bounced back strongly.

Auction clearance rates are back to levels you might consider ‘average’ or ‘normal’.

So for me, all of that points to a property market that is already building towards its next bull run.

Things are tight and only getting tighter.