Welcome to 2016! We trust you’ve had an enjoyable break and spent summer with friends and family. To kick-start our blog for 2016, we thought we would share some insight into the property market and the wider economy for the year ahead.
According to leading chief economist Shane Oliver from AMP Capital, the Sydney property market has become so stretched that price growth will be weak in 2016 and prices are likely to fall in 2017.
“I think because the property market has become so stretched, particularly in Sydney, it has been enough to tip the cycle back down again,” he said. “This year we will see weak price growth and then next year we might actually see price declines.”
Mr Oliver believes house price growth has peaked, and that the wealth effect of rising property prices will begin to weigh on consumer spending for the economy.
However, it’s important to remember that we have seen these cycles go up and down for the last decade:
- Sydney had a slowdown in 2005 where prices fell between five and 10 per cent in certain areas.
- There was an upswing into the run up to the GFC, then a downswing in 2008.
- Prices fell in 2009, then we there an upswing in 2010 into early 2011.
- 2012 saw another downswing and then our most recent upswing.
A downswing in the property cycle is usually triggered by monetary tightening, which has been fairly constrained over the last 12 months. However, Mr Oliver noted that the out-of-cycle rate hikes of the banks towards the end of 2015 dampened sentiment and dramatically shifted expectations.
One of the reasons that investors have backed right off is that sentiment regarding expectations for home prices has completely reversed. It has gone from “we’ve got to get in now otherwise we’ll miss out and prices are up 15 per cent per annum and that will continue”, to a fundamentally dented, more cautious sentiment.
Consequently, auction clearance rates started to fall and house price growth slowed towards the end of 2015. However, as the property market cools down in Sydney and Melbourne, it does provide some scope for first home buyers to get into the market.
In terms of the economy, January is always the month used to predict the share market for the rest of the year. There are a lot of interesting plays influencing sentiment at the moment. Banks are short selling everything which is causing uncertainly. However they capitalise on the bad news by the short sell. China is not heading as far south as the media would lead us to believe – it is easing, but the value of their economy is far stronger than what it was at the height of the GFC.
The current message, perception and sentiment doesn’t always match the numbers. As part of this sentiment, Economist Scott Francis from the Eureka report notes that it’s worth considering whether the “Other January Effect” – the idea that market returns in the month of January predict the overall returns for the year ahead – is a useful idea for investors. He argues that based on past performances, the January Effect holds little weight.
In terms of property, a Chatswood real estate agent shared with me that he had over 41 people through a property’s first open for inspection. If that’s a declining market we will take that any day of the week.
regards,
Andrew Bruce, Samia Malouf, and staff.
Riverview Realty is a boutique agency focused on achieving the maximum price, with a client engagement that is above the industry standard. We call it the “Ultimate Experience” which forms part of our unique selling proposition.
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At a recent Partners Wealth Group / AMP function, economists and advisors gave a brief and broad overview of the state of the global economy and its impact on Australia.
