10 Nov What the market is really up to? – Michael Yardney
There are mounting signs that Australia’s housing market may be moving through the peak of the cycle. In today’s show Michael Yardney, from Metropole Property Strategists, outlines the factors that are hinting at a market peak.
Kevin: There’s a lot of news about what the market is up to. We’re seeing reports of downturn in the Sydney market. Auction clearance rates are certainly falling in both Sydney and Melbourne, which are the two benchmark areas, of course. So, what is going on?
Michael Yardney from Metropole Property Strategists. Michael, how are you reading all of these signs out of the market at present?
Michael: There are lots of messages aren’t there, Kevin? Clearly we’ve reached the mature of the stage of the property cycle, and the growth that Melbourne and Sydney experienced over the last couple of years – double-digit growth – was unsustainable in the long term.
The markets in Melbourne and Sydney have gone from fifth gear to maybe third or fourth gear. They’re not in reverse. The rest of Australia’s markets are fragmented, and we can have a talk about each of them as we go on. It’s going to be different next year than it was this year, Kevin.
Kevin: It’s never the same, Michael. What sort of research are you using to help you determine this? What are you reading?
Michael: What we’re looking at is a combination of things. Some are lagging indicators – things that have happened in the past – and some are forward or leading indicators – things that will give us an indication of what’s happening in the future.
One of the things you mentioned was auction clearance rates. They’re particularly interesting in Melbourne and Sydney where there’s quite a depth to the auction markets. They seem to have peaked around April/May this year when in Sydney, auction clearance rates were consistently in the 80s, and in Melbourne, they were in the 70s. Now they’ve gone down to what I think people would consider a normal market than a booming market, but it is a sign that the exuberance in the market is slowing. Kevin, that’s a good thing.
Kevin: I saw a report recently that listings are on the increase, as well. Is that having an impact?
Michael: It’s a combination of the time of the year when more people think they should be putting their properties on the market because they’ve heard that spring is the best time to sell. I’m not sure I agree with that. The other thing in these high-performing markets is that people see the houses around them going up in value, so a lot of people considering getting in, taking advantage of that, and moving up – upgrading their homes.
I think there is a sense in Sydney that the market may be nearing its peak. Yes, there’s lots more properties on the market in Sydney – there’s actually 4% more than there was this time last year, close to 5% more – as more people are trying to get in before it’s a little bit too late.
Interestingly, in other markets that are not performing as strongly, there’s 20% less properties for sale in Perth, 12% less in Darwin, and 5% less in Brisbane, which is one of the reasons those markets are not performing the same as the Sydney markets.
Kevin: I don’t want to necessarily sidetrack you from our conversation, Michael, but you made a comment there about spring not necessarily being the time to sell. You don’t think that’s the case?
Michael: A lot of people do, but as we just saw in the Sydney market, there are lots more properties for sale. If you’re a purchaser that gives you more choices, and if you’re a vendor or seller, in fact, you probably have more competition. I wouldn’t be necessarily trying to time the best time to sell my property on the market, Kevin. I’d be doing it when it suits me.
Kevin: That’s good advice. Back to our topic, investment demand is moderating; does that have a lot to do with the tougher lending criteria?
Michael: Yes, it has. Before we get onto that, if I could also mention that when we look at listings and how many properties, we also look at another statistic that you can get from websites like CoreLogic RP Data that show the month of supply on the market. In other words, how long it would take the average properties to sell.
If that’s rising, as it currently is in Sydney, it would be a suggestion that the market isn’t as strong, there isn’t as much depth to it. But in Sydney, it’s taking two and a half months to sell the average property. If you go to Perth, Kevin, it’s seven months, and much the same in Darwin.
So the research we’re doing is looking at listings, how many people are in the market, and how long it’s taken to sell. Then, as you said, investor demand is moderating. APRA’s tightening of the screws is working, and investors are finding it a little bit harder to get finance.
Definitely one of the things that we’re suggesting is saying that we’re reaching the peak. By the peak, it doesn’t mean now it’s going to fall over the edge and keep dropping; it means it’s not going to rise as fast in the future.
Kevin: What’s going to happen to rents, Michael?
Michael: Interestingly, despite all the new properties and apartments being built, rental vacancy rates haven’t gone up much. It’s been keeping in sync with the supply of properties. But rents have been on the low side for a while now. In fact, according to CoreLogic, our rental growth has been the lowest it has been for about 20 years.
I think that’s going to start pulling some other investors out of the market, those chasing yields, because it’s going to be harder for them to service their loans because rental yields are low considering that properties have gone up in value but rents haven’t.
Kevin: Bottom line, Michael?
Michael: Bottom line is you can’t just buy any property. The property markets are moving through one stage to the next. They are fragmented as each state is in its own stage of the cycle. Do your homework carefully. It’s still a good time to buy, but don’t count on as strong capital growth next year as we have over the last couple of years.
Kevin: Michael, good talking to you. Thank you for your time.
Michael Yardney from Metropole Property Strategists. Don’t forgot Michael’s blog site: PropertyUpdate.com.au
Michael: My pleasure, Kevin.