Is the bubble about to burst?
We’ve seen it already – headlines claiming that the bubble is about to burst and property is going to crash.
Yawn. I mean, I have had a pretty relaxed break over Christmas, but I was starting to feel quite energetic about starting work again until I saw these headlines, and it instantly began to feel like ground hog day!
Let’s just ignore the postulating, the calculating, the figures and the analysing for a moment, and look at real life, and what is actually happening.
Firstly, there isn’t a single property market. There are around 4,350 postcodes in Australia today, with some of those postcodes covering up to 20 suburbs or localities, and pretty much every one of those suburbs has a different median price. The closest estimate that I could find is that there are a total of 15,274 cities, towns, villages and suburbs in Australia. Along with that, every single one of them is exposed to different growth drivers, and also has the capacity to grow at a different rate, and at a different time, than even their neighbouring suburb.
Sydney has roughly 650 suburbs at last count, meaning that, as a percentage, it comprises around 4.2% of the total number of suburbs. Melbourne has 321 suburbs, or around 2%. Now, I will grant that some of these almost 1,000 suburbs will be far more dense and populous than some of the other suburbs counted in the 15,274, but the point I am trying to make here is that even if the Sydney or Melbourne property market crashed, that means that only 6.2% of the market will be crashing.
Secondly, let’s look at what’s actually been happening in these 15,274 suburbs.
Everyone knows that Sydney has boomed along these past five years. That was a much- needed boost, given that between 2003 and 2010, when most other capital cities experienced an almost doubling of values, Sydney only grew a total of 17%. Over the past 5 years, Sydney has grown at around 75%, or 18.4% per annum – each one year has been better than the entire 7 years between ’03 and ’10! During that time however, Adelaide has only grown by 4.9% per annum, Perth by 3.7% and Brisbane by 4.28%.
It’s hard to see any property boom there, and given that the demand in all three areas is currently higher than the same time last year, equally hard to spot an impending crash in any of those capital cities. While it’s certainly true that Sydney property will begin to slow during 2018, it’s my opinion that all three of these markets are likely to continue to see a creeping demand which actually increases prices, rather than makes them fall.
But, back to my first point: there isn’t a single property market – there are over 15,000 of them! Even looking at how these capital cities, as a whole, are performing doesn’t provide a true picture of what we will see happening in prices this year, and this is the major problem with how property price movements are reported. Averages always take into account the highs and lows, to report a figure somewhere in the middle, and if this is how you decide where to buy property, you’ll miss the areas which are on the precipice of excellent growth – and mark my words, this will happen this year in a number of markets.
I don’t expect a crash in Sydney, although I do expect that anyone who tried to rush in during the final stages of the boom may well have paid too much and is likely to see not only a correction of the price they paid, but a significant lull in growth for some years, making it seem like their values have crashed. To a lesser degree, Melbourne buyers in some areas might see a slow- down, but little to report in the way of values losses, with the exception of the over- supplied inner- city apartment market. Outer suburbs of Melbourne will most likely grow – with significant demand pressure on transport linked nodes in the Western suburbs.
As for all other capital cities, with the exception of Darwin, I think we will see growth, and some robust growth at that in many undersupplied suburbs which sit alongside logistics centres and where transport and community facilities are being upgraded. In fact, in some affordable suburbs, I’d say we will see double digit growth, as demand outstrips supply and rentals begin to turn into first home owner occupied properties.
But of course, none of this is exciting news, and the headlines will still find some way to scream ‘property bust’ as the Sydney market cools and becomes more normal. I’m happy with that though – some of my best buying always occurs when there’s a ‘crash’! As Warren Buffet says, ‘Be Fearful When Others Are Greedy and Greedy When Others Are Fearful’. I’m getting ready to be greedy this year!