Is The Property Clock Broken?
If you’ve spent any time learning about property you may have come across the ‘Property Clock’ which is a diagram showing how the major cities and regions are performing.
You can see here theres a clock published for houses, one for apartments, even one for commercial property.
When a region is marked at the “12”- it is peaking, prices are high and increasing auction clearance rates are high, confidence is high, it’s a sellers market. When a region is at the “6” it’s the opposite- Doom and gloom, nothing selling, prices pulling back. Theoretically and historically, property markets moved around the clock, from peak to trough and everything in between, in an orderly fashion, every five to eight years, and the clock was a reasonable way of tracking market cycles.
What you’ll find now is the clock isn’t reliable anymore.
As an example take Sydney house market which peaked toward the end of 2017 plummeted to the bottom in 2018, and then all of a sudden in mid to late 2019 roared back to life, and it’s been just as erratic in 2020.
In simple terms the behaviour of both global and local economies has been unpredictable, with a number of large shocks. When humans are faced with uncertainty our reaction is to reduce our activity, our production and consumption. Recently, government and the reserve bank have tried to counter that with stimulus, by reducing interest rates and making credit easier to access, and to some degree that has worked to keep us transacting and prop up property prices but we are seeing some interesting divergences.
What’s the result?
Higher prices are coming in despite, or perhaps partly because, the number of properties sold every year has been declining since 2015. In that same period the value of Australian property has increased by 56%*
A home costs three times more today than in did in the eighties, relative to our income. So, less supply at higher prices means those who can access credit are doing the buying, and driving prices up further. Property with a land component is in demand (flight to safety) Apartment values are decreasing, whilst house values continue their increase. There also appears to be a greater fragmentation between property locations. You can even notice significant differences in the price performance between neighbouring suburbs, and streets within suburbs, as buyers seek the very best they can afford for the price they are paying.
What does this mean for you?
Nothing can be assumed, especially not the orderly rise and fall of property prices in a given location. Increased uncertainty and unpredictability makes it all the more important for you to do your research. Tracking your data closely, looking at sales and price movements on a week by week basis, as well as assessing supply and demand for the type of property you want to buy will help you to understand where your local property market is at to make an informed purchase decision.
Sources: housingdata.gov.au, abs.gov.au,