Is Housing Out for the Count?

9th of November, 2017

CoreLogic data late last week sent headlines spinning. The announcement that Sydney house prices had declined 0.5% was a shock to all. This results in Sydney house prices growing by a miniscule 6.6%pa!

Head of Research, Tim Lawless, called it a “significant turn of events”. But UBS economist George Tharenou saw it as much worse than that – proclaiming Australia’s housing boom is now “officially over”.

“Australia’s world record housing boom is ‘officially’ over after a large ‘upswing’ of 6556% price growth in 55 years,” UBS economist George Tharenou.

Now that’s a BIG statement.

Sydney house prices have risen by over 70% since 2012 however, many are pointing to the material effects that APRA’s tightening regulation is having on the banks.

Lawless went on to say: “Lenders have tightened their servicing tests and reduced their appetite for riskier loans, including those on higher loan to valuation ratios or higher loan to income multiples.

Additionally, interest-only borrowers and investors are facing premiums on their mortgage rates which are likely to act as a disincentive, especially for investors who are generally facing low rental yields on investment properties.”

Credit plays a very important role in facilitating the rate at which property prices grow. The more liberal the banks are in creating credit the quicker the rise. You’ve have heard it all before – debt filled asset Booms.

The UBS’ Global Real Estate Bubble Index ranks Sydney at number five after Toronto, Stockholm, Munich and Vancouver.

What really stands out to me when I read such articles and commentary is how little they understand about how these markets actually work. What drives them and the cyclical rhythm they follow.

It’s no wonder people get confused and emotional about what the hell is going on in property and investment markets? One minute the talking heads are saying Boom, the next Bust… What are we to believe?

It was only Four Months ago that we wrote a blog “There is NO housing Bubble (YET!)” in response to investors getting smashed by the media about what great shape the housing market is in!

Credit plays a vitally important role, but it’s NOT the only driver of asset prices.

To look at isolated housing numbers, without the context of the Calnan Flack Economic Action Plan and draw a sensible conclusion is nearly impossible. It certainly IS IMPOSSIBLE if you do not understand how a cycle must manifest or what are the true drivers of the cycle.

That’s why we developed the Calnan Flack Economic Cycle Action Plan. To help investors make better investment decisions. Have a look at our courses and events or feel free to contact us directly to have an Investor Mentor give you a hand.    We’d love to help!