OPINION: IS the housing market on the brink of a plunge? Auction clearance rates are sharply lower in recent weeks and housing finance data for September is very mixed.
The b-word is out in force, as commentators everywhere compare the property market to an ephemeral soapy sphere.
But anyone convinced prices are a bubble needs to look twice.
The forces supporting a strong Australian property market are diverse enough and strong enough to mean any significant or sustained fall in prices is very unlikely.
Let’s start with pent-up demand.
September housing finance statistics show even as the value of loans for investment housing fell sharply, owner occupied housing rose – and the number of purchases of both new and established dwelling shot up.
Ten years of limited supply and price growth has left many first home buyers on the sidelines. Young couples are now commonly renting into their late twenties and early thirties.
No slippage in prices can get very far before it tempts these people into the market. When they do enter, it will be well armed. Their years on the property market sidelines have not been spent in vain. Australia’s saving rate has been at its highest rate in decades for nearly a decade now – many potential buyers have sizeable deposits ready to go.
Changing patterns of demand also support Australian property prices. Density is in.
Demand for apartments is about changing demographics and they way the new generation choose to live their lives. It’s about amenity in the CBD, about access to food, retail, entertainment, and parks – all the amenities that come with the city.
In Melbourne CBD at all times of day and night younger people are enjoying the city – in restaurants, cafes, bars, down lanes and alleys – all sorts of place that are opening up. Australian cities will become more like Asian cities – where your apartment is where you sleep and the rest of your life is lived as part of a thriving, buzzing metropolis.
The falling Australian dollar is another huge support for the Australian housing market.
Inbound education from Asia – including India – is likely to shift upward as the dollar continues it slow descent from US dollar parity. In just the last month the dollar has fallen from US73c to US70c just, but the effect on a long-term decision like education will manifest slowly and probably be very enduring.
The relative sizes of China, India and Australia mean even a small pull factor like a lower dollar has the potential to make a large difference to the local market.
And Australia’s property has the potential to boom whether Asia blossoms or blunders.
Australia’s housing market could be very well positioned to weather a downturn in the Asian economy and financial sector. Not only do investors from Asia want a piece of Australia when times are good, but when times are difficult, we are seen as a safe harbour. It is certainly not clear that a crash in Asia would cause a collapse in Australian property prices.
But perhaps the most important support for local property prices is that Australia’s economic fundamentals are in good shape. As the housing boom ends, the economy is rebalancing without a major risk of recession or a spike in unemployment. All the evidence we are seeing is that there is no mortgage stress, and in fact most borrowers are ahead of the game. We believe the property market is sound.
That said, Australia cannot afford to be complacent. Money flowing from Asia is fluid and any knee-jerk policy changes could be risky.
Recently, the federal government changed capital gains tax and the Victorian government has changed stamp duty and planning rules. We do not want to introduce sovereign risk – Asian money is fluid and could easily go to London or Auckland if the Australian market becomes untenable.
For property investors the advice is to act calmly. Take a medium to long-term view. Focus on fundamentals, seek advice, and don’t be too perturbed by short-term dramatic headlines about the market.
By Michael Langhammer, Partner in Charge/Executive Director – Business Advisory and Assurance, Pitcher Partner.*
Property Reviewer on Australian Property Journal
