February 2, 2023 by Dymphna

Revealed: What the numbers don’t tell you

The numbers tell a confusing (for some) story

Imagine this.

I’ve got two assets I can sell you. The first one will go up in value by 30% in three years.

The second one will fall in value by 10% in 12 months?

Which one do you want?

Ok, that’s a trick question. It’s the same asset!

Which asset?

The median house in Brisbane.

I’ve seen a few people make a big deal about the fact that property prices are falling quite quickly in Brisbane.

Since peaking a little less than a year ago, median prices have fallen 10.9%. That makes it the fastest fall on record.

On it’s on, that sounds kind of bad. It sounds like Brisbane is having a bit of a rough trot. Better avoid Brisbane property like the plague.

But it totally ignores context.

Because while it’s true that prices are falling right now, those declines follow some spectacular growth in the years prior.

And looking through it all, between 2019 and now, even with the recent declines, Brisbane house prices are 27.9% higher.

So the point is, while some people might want to make a song and dance about recent declines, the bigger truth is that if you bought a property in Brisbane prior to the pandemic, you have done very, very well.

And very, very few investors hold a property for less than twelve months – and then it’s only because they’re probably renovating and flipping.

Typically, almost nobody would buy a property, do nothing to it, and then sell it twelve months later.

And these declines were to be expected, you can’t expect property prices to soar 40%, follow that up with 300 basis points of rate hikes, and not expect to see some consolidation.

And so look. I get people want to make this out to be a disaster – that’s going to get you clicks. But it’s just not the truth.

And what I’d argue is that what we’re seeing in the property market right now is all fairly predictable and normal.

And what I noticed from Corelogic’s latest data release is that house prices in Adelaide and Perth have only just now started to roll over.

Prices in Sydney, Melbourne and Brisbane are much further along in their consolidation cycle. Adelaide and Perth are just beginning theirs.

Adelaide is down 2.3% from it’s recent peak. Perth is down just 1.0%.

But my bet is that Adelaide is going to fall much further than Perth, simply because Adelaide enjoyed much stronger growth than Perth in the months following Covid.

Adelaide prices are up over 40% on their pre-Covid levels.

While Perth prices are up just 20%, and are still lower than their mining boom peaks in 2013.

So I don’t expect Perth prices to fall all that far.

Adelaide though, I expect that could give up another 10-or so percent.

The market is consolidating.

And once the consolidation is done. Growth will return.

But I’d be surprised to see all that much out of Adelaide this year.