Riding the roller coaster

When I think about the ups and downs of the Australian property market over the last few years, I'm reminded of a recent family visit to Dreamworld on the Gold Coast. Stepping aboard one of the newer style of rollercoasters with its whiplash turns and precipitous drops, it promised airborne exhilaration and white-knuckle terror in equal measure. The kids loved it. I couldn’t wait to get off. So, given the wild ups and downs of the property market in the last couple of years, I absolutely sympathize with folks standing on the side lines and wondering whether this is a ride they really want to get on. With consumer confidence at a low ebb and inflation at its highest level since 1990, the outlook for 2023 is anything but certain. But there are signs that the second half of the year could see the rollercoaster level out and enjoy a bit of even terrain. Let's take a look at some of the factors giving me a bit more confidence in the year ahead.

Long growth cycles, short downturns

In March this year, the Reserve Bank of Australia made its 10th consecutive raise in the official cash rate to 3.55% in a bid to tamp down inflation. For mortgage holders and those seeking new finance, this has been disheartening news. The questions on everyone’s lips now seems to be: when will it end?

There’s a growing consensus amongst economist and market watchers that there could be another rate rise or two yet to come, but the inflation-dampening effect has started to work. We may be seeing the beginning of the end of this downward cycle. Exactly when the recovery begins again is still to be seen and is uncertain, but it’s worth remembering that in the long history of the Australian housing market, upward swings typically tend to last much longer than the downturns, and that overtime the trend is historically toward growth.

According to leading property insights business CoreLogic, there have been six distinct cycles of growth and decline in the last 30 years, with dwelling values rising by an annual compound rate of 5.4% on average since July 1992. Research by Domain found that downturns last for a quarter of the time as upswings, with the depth of declines getting nowhere close to the boom-or-bust predictions that frequently make news headlines. That’s a useful long-term picture to keep in mind when contemplating whatever volatility the property markets experiencing in the short term.

Interest rates are only one part of the economic story

While interest rate rises have been the big economic news story of late, they’re far from the complete picture. Australia’s labour market remains healthy with low unemployment and moderate wage growth. This means that the ability to borrow (and payback) mortgage finance may still be in reach of many people. One of the other big indicators is what’s happening in the rental market. To say it’s tight is an understatement. Vacancy rates are the lowest they’ve been in many years and rental prices are surging as demand far outstrips supply. With borders reopened, immigration rising, smaller household composition than we’ve ever seen before, and supply constraints in almost every major city, the demand for new housing is now at a critical level. These factors alone are likely to fuel a significant new growth cycle; it’s just a matter of time.

There’s another indicator you won’t find in a chart from the RBA or CoreLogic, and it’s what we’re seeing on the ground at our Frasers Property projects across the country. Buyers haven’t fled the market; they’re simply taking their time and doing their diligence. Sale cycles may be a bit longer than they were at the peak of the last boom, but savvy purchasers seeking quality investments and who are shopping for specific features and amenities are most definitely still active. Many are using the quieter, less chaotic market conditions to get their hands on a property that perfectly suits their needs.

A steady long-term view is better than a risky short-term gamble

Australians are a property obsessed people. We love to talk who bought well and who got priced out at the peak, but the truth is that gambling on when the market will bottom out so you can jump in and cherry-pick a bargain is incredibly hard. It’s virtually a game of chance, that’s how hard it is. For the vast majority of homeowners and would-be homeowners, the mid to long term horizon matters much more. If the home you’re looking at is somewhere you expect to live for the foreseeable future (and even longer), focusing only on short-term cycles is a distraction that could potentially keep you from missing the window that works for you. The smart approach is to have your own plan, know what you can afford, and take that rollercoaster ride when the time feels right for you. With good diligence and decision making, you’ll find it’s an exhilarating adventure.

Cameron Leggatt

Executive General Manager, Development Frasers Property Australia