The main picture demonstrates the stock market moving through its phases and property behaves somewhat similar, overtime the trend line goes up however not without dips, booms, corrections, bounces and busts along the way.
The market in Melbourne has dropped more than 10% on average in the last 12 months after an incredible run, looking at the chart we appear to be in a potential “Bull Trap” where the market starts to return to normal or does it?
If you asked me my opinion I believe this chart example would be highly relevant had labour won the election for the following reasons;
1. I believe vendors would have met the market and sold ASAP if Labour won.
2. I believe through a combination of a winter stock shortage and investors wanting to buy established properties before the negative gearing changes went through there would have been a little bounce in the market.
3. By spring more sellers would have hit the market and there wouldn’t have been enough buyers to buy all the stock sending the market into fear mode as vendors would have starting reducing prices again.
4. If the negative gearing and capital gains tax changes bills were passed the market would have capitulated.
5. Eventually we would have hit despair, the market would have bottomed, people would’ve started buying again and the next cycle would start to begin.
Mind you all of this would have happened over the course of labours term with maybe the start of a recovery just before the next election when the coalition would be favoured to take parliament back over.
So are we in a bull trap? Is the current sentiment positive and are we returning to normal?
A couple of weeks ago we had an upset result in the election or we were led to believe that by the fake news media. The coalition won the election and there is already renewed hope that ScoMo will lead us back to prosperity.
I’m not trying to make a claim that there is an entire shift in sentiment across Australia however I personally have had a pretty good month with sales in my area (Melbourne’s Inner North) which leads me to suggest that there is at least a shift in sentiment there.
In the month of May I sold 12 of my listings, 6 of those were pre-election (First 18 days) and the other 6 were in the proceeding 12 days after the election. A few of those listing were Auctions that sold prior and majority were private sales with a couple of them that had been on the market for a while.
For the first time in 12 months after moving 12 listings for the month I’m now a little short of listings which is a good thing because it means the market is moving faster again and I’ve sold a fair bit of property for clients.
I want to be clear, I’m not saying that the market has moved back up already because it hasn’t, however buyers have come in and started buying the stock instead of just sitting on the sidelines hoping it capitulated further and I think the election result has helped that.
If confidence is creeping back in it potentially could be that the market is starting to stabilise at the moment as buyers feel we may have bottomed and that’s a good thing, as it will be easier to price and sell properties in a shorter time frame which will in turn also restore more market confidence.
Is the stock moving because it’s winter and there isn’t a lot for sale?
Normally in the past few years winter has been busy, however this year does seem to be pretty quiet already and who could blame vendors for not being in a rush to list their property?
In the last 12 or so months we have been in a market downturn due to a royal banking commission which in turn caused a tightening of credit not to mention we also had political uncertainty as possible policy changes that could have come in would’ve had a major affect on property.
This will be a quieter winter in my opinion for listings and I don’t feel that stock levels will pick up until after the July School holidays where vendors will have their properties listed for August Auctions.
It’s ok for us agents in the meantime to clear out the remaining properties and take a small break to prepare for the second half of the year.
Can ScoMo get the wheel turning again or are we all doomed?
I’m personally not really into politics although I can say I most certainly didn’t vote labour as I didn’t believe in Bill Shorten’s Policies with the big changes to negative gearing, franking credits and the capital gains tax discount.
I also think with the market downturn over the past year due to the royal commission and tightening of credit, quite a few Australian’s weren’t convinced with Bill’s policy changes either and hence we as a country decided to stick with ScoMo.
In my opinion ScoMo is certainly going to try to get the wheel turning again and he has already stated that he will be looking at assisting first home buyers to get into the market by looking at covering the dreaded mortgage insurance costs to help buyers who can only raise a smaller deposit buy.
APRA has also suggested they’d like to reduce the serviceability cap from 7% to a lower level more realistic level around 2% above the variable interest rate.
The economists are predicting and the RBA have also hinted at the possibility of 2 x .25% rate cuts which will also try to encourage people to spend again.
If Bill Shorten won the election there is a good chance we were all doomed by capitulation and despair for a few years as his policies would have only made a fragile market worse, however he didn’t win which means we’re a better chance of at least stabilising if not flourishing again under a coalition government.
So will the “Magic Pills” work?
There is no doubt they will have some affect however in my opinion it’s a do or die situation now for the economy as basically we might be throwing our last ammunition at it to try and get things up and running again, so we all must hope that the stimulative measures work and get Australia “the lucky country” to avoid any possible recession.
Even if prices were to remain stagnate but stopped going down with the stimulative changes implemented, slow and steady would possibly be enough to get us through the next few years before eventually the next upward cycle starts again.
Why won’t the market come roaring right back?
Nobody can’t say for sure that it won’t but after a recent royal commission you would think that lenders will still be more responsible and their irresponsible behaviour in regards to lending pre royal commission which over inflated the market and led to a sharp downturn once the rug was finally pulled.
“Credit controls house prices and wages control rents” is what my stockbroker told me and not the rules we were led to believe like supply and demand, interest rates, migration etc. and I believe he was right because all of those things meant nothing once credit was tightened up.
Emotions can also drive markets in my opinion because when the market is in GREED mode people buy until their nose bleeds however when the market turns to FEAR mode people think real estate has a contagious disease.
I believe at the moment we have gone from GREED to FEAR in the last 12 months and are heading back to balance of both call it TREAD WITH CAUTION and confidence will either continue to grow and the stimulative measures will work or if not and things don’t stabilise and improve then capitulation is likely.
I personally feel capitulation was avoided with the election result, but time will tell.
Why is property a good investment long term?
Property is long term wealth preservation, titled land is always there however property is not meant to be a speculative bubble.
The banks cashed in on enthusiasm, greed, delusion and a new paradigm in the euphoric mania phase and that’s not right but it’s been happening for many years and will happen again one day.
The correct way to treat property is to buy it with a long term view but make sure it’s a good property with excellent amenity and growth prospects.
Make sure you can comfortably afford it and remember property is not meant to be used as an ATM machine either so be careful with equity and debt.
Good luck with all your real estate endeavours and if you’re looking to buy or sell a property please feel free to reach out!
P.S Please see the 12 listings sold below for total transparency and a big thank you to all the vendors for entrusting me with their property sales.