What often gets reported as a ‘cliff on the property market horizon’ usually plays out as one small step down followed by 7 to 10 steps up.
Given the frequency of cliff-calling, the historical evidence says more about the shortcomings in people’s property market knowledge, the personality types of the ‘cliff’ proclaimers and group-think than it does about the changing value of real estate in this country.
That’s not a cliff, you clown
Stereotypically, the property market of an individual city over a 10-year period might ‘hop’ along at between 1 and 5 percent in 6 or 7 calendar years, 1 or 2 years might produce a mild ‘step’ down of circa 1-4 percent each year, and the remaining 1 to 3 years might produce a ‘jump’ of 8-12 percent (boom years).
The specific calendar-years of median house price decline vary from city to city.
Helped along by persistent glass-half-empty commentary, the default behaviour of most humans is to get consumed by the here-and-now drivel in their device at the expense of realising that the horizon is quite bright.
More often than not, the crisis-of-the-moment only lasts 6 to 18 months, although one’s feelings during such a relatively small moment in time are often much more intense than the situation warrants.
Ahh, one of downsides of this digital world.
Before too long, conditions have improved significantly.
Then those one or two small ‘steps’ down are reflected upon as little more than a blip among a decade of steady ‘hops’ and the occasional ‘jump’.
Meanwhile, an increasing number of people begin wishing they purchased real estate during the dip so that they enjoyed 100 percent of the subsequent rise.
The cycle of Group-Think then starts all over again.
Safe As Houses
The hard-wired Negative Neville’s of the world have never been able to resist a prediction of ‘a cliff on the horizon.’
Our recent property market report summarised dozens of significant events of adversity over the last 50-years and how Australians failed our way to success.
Yet, when it comes to house prices, how many ‘cliffs’ can you see in the above graphical illustration of the last 50-years?
Negative Neville clearly does not realise that the combined capital city value of a standard house increased from $15,000 in 1972 to $915,000 in 2022.
Within recent years, Neville and his lemon-sucking friends have forecast a bunch of ‘cliffs’:
- May 2017: The federal government significantly diluted negative gearing benefits (depreciation deductions) on investment properties. The only ‘cliff’ that this policy helped create was more people living in makeshift accommodation due to insufficient supply of rental accommodation.
- January 2020: According to the lemon-suckers, the ‘population cliff’ from closing the international border was supposed to produce the biggest property market downturn in human history. To the contrary, property markets took off just 6-months after the gate was shut. Fast forward 3-years to now, the value of a standard house in 130 of Australia’s 150 largest townships increased 40 percent or more. Talk about ‘equity boom’.
- March 2020: Some sour faces were barracking for a ‘distressed investor cliff’ when a 6-12 month moratorium on rental evictions was introduced.
- March 2021: The end of Job Keeper was (apparently) going to produce a dire ‘household finances cliff’. Instead, a jobs boom unfolded, and household balance sheets scaled to current all-time record highs.
- March 2021: When the option for borrowers to place a COVID-freeze on home loan repayments ended in March 2021 it was (apparently) going to trigger an almighty ‘distressed sale cliff’. Hmm.
- May 2022: Earlier than expected action by the RBA was expected to cause an ‘interest rate cliff’. Despite the sharpest ever increase in RBA’s history, home loan arrears are currently a piddly 0.76 percent. Yes, the asset value falls in Sydney and Melbourne are mounting up, but their downturn commenced 6-months prior to the rate rise cycle started (due to concerns flagged by Propertyology at the start of the pandemic. Truth be known, house values in many parts of Australia are higher now than a year ago.
- October 2022: The lemon-suckers of life’s latest cliff prediction points the gun at property owners with fixed interest rates maturing during 2023. It’s not as if fixed rates are a ‘new thing’, or that all of these borrowers can’t budget, that they don’t have time to make adjustments, or that they don’t mind sleeping in the gutter.
There is a better chance of snow in the Sahara, than a tsunami of homeowners handing in their house keys to banks.
- Up Next: Personally, I find it fascinating that Australia’s outstanding achievement of creating 780,000 extra jobs over the 3-years to December 2022 and the lowest unemployment rate in 50-years is not celebrated. But I’m certain that Neville and Nellie won’t miss their opportunity to shout ‘unemployment cliff’ and ‘recession’ whenever the unemployment rate trends back towards the historical ‘normal’ of 5-6 percent. Silly lemon-suckers.
Don’t Let The Junk Stop Your Jingle
While more folk choose to sip honey than suck lemons, the majority of people pay far too much attention to those with the sour look on their face.
The media know that: ‘If it bleeds, it reads.’
The big picture consists of much more than the 10 percent that gets 90 percent of the attention at a particular point in time.
Make no mistake, as Australia’s combined capital city house price increased from $15,000 to $915,000 over the last 50-years, those who prospered most were the ones who made a conscious decision to keep moving forward while others stood still.
In this current climate, the predictably paranoid will allow themselves to get distracted by the commentary regarding interest rates, inflation, and last quarter’s poofteenth percent fall in house values.
Far more important than the rear-view mirror actions of the RBA during the 2022/23 financial year is the inputs which will shape the front-windscreen activity in 2024/25.
Those current inputs include many parts of Australia having all-time record low housing supply, the strongest labour market since the early 1970’s and intensifying upward pressure on wages.
This tail end of the RBA’s rate raising cycle provides a window of opportunity ahead of a pattern of rampant overseas migration and millions of Australian households putting their large reserves of equity and liquidity to good use.
You wear the shoes. Now make your path.
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