Property Cycles

Hi All,

Wanting to ask how everyone tracks the property cycles in the capital cities and major regionals?

How do people come up with where cities sit on the property clock etc.

Any good reads: either books or articles

Predictions?

Thanks

 

It’s all historical. History does not necessarily repeat but it gives us some pretty strong indicators.

 

Yes, agreed.
New drivers can change that though.
I wonder how much of a catch up the other cities will have to Sydney and Melbourne

 

I ignore the analysts and go boots on ground. That's the only reliable way for me. Pick a range of properties and go to home opens a few weekends in a row. That will give you a pulse check of where the market is at. I was on the ground when the market peaked in my area. It was easy to pick the peak. When auctions were being passed in at record high prices and every attendee walked away shaking their heads in disbelief, I knew the boom was over. Prices went down, down, down from there.

 

Hard to do interstate.

 

Your question was "how do you...?". Not "how should I...?"

In that case you ask other people who are on the ground. Economic analysts can tell you what happened on the ground after it hapoened. Only people on the ground right now can tell you what is happening on the ground right now.

 

That's good when interest is up but I guess the problem is when you are trying to get in before everything rises and you are paying a premium. Easier to see when things are slowing down but trying to predict a rise is not so easy then as there shouldn't be many people bidding etc.

 

Herron Todd white reports

 

I'm not much of a metrics/stats person but these, I always analyze when looking at markets and trying to gauge supply/demand. They will actually give you a good indication of where a cycle is at as well as talking to players on the ground. If you can analyze 1-9 well and talk to players in the markets, you'll be miles and miles ahead of most.

1. Days on market (DOM)
2. Vendor discount percentage
3. Auction Clearance Rate (ACR)
4. Proportion of renters to owner occupiers
5. Vacancy rate
6. Yield
7. 3 year, 12 months, quarterly CG history.
8. Stock on market percentage (SOM%)
9. Online search interest (OSI)

 

Nothing beats awareness and forming your own conclusion, not only in market cycles but everything.

 

Charts and cycles only work in hindsight and presentation
You can't really pinpoint it in real life just like bubble, you can only present it after the fact

time and knowledge -> experience which then you can use to judge where the market is heading or currently at but even then it only the best guess

 

According to Matusik....... (I think his got it wrong)

Assuming a 7 year housing cycle, then how long does each phase of the cycle typically last?

• Recovery phase: 1 to 2 years
• Upswing phase: 1 year
• Downturn phase: 2 years
• Stagnation phase: 2 to 3 years

Lets compare what happened recently in Sydney and Melbourne.

Recovery - 2012
Upswing - 2013-2017 (5 years)

Now in downturn phase????

Just shows upswing/boom can last much longer than 1 year, from my experience at least 2 years ++++

Downturns are understates, they can go on for 7+ years.

MTR

 

I use price index history data from ABS and a few other pricing resources. just do a quick Google search. I had a pretty good track record at picking the bottom or early upswings in the past in a few markets which to us is the most important. But I am not so good at calling the peak as I got it wrong in Sydney, it wasn't a major issue for me as I am not selling. For a bottom out market, you will see good homes are selling for less than replacement value, low amount of interest, sellers agent treating you like a royalty etc... you would want to go in when the economy is starting to stablised like unemployment rate, migration, business investments going up vacancy rates starting to trend down. IMO Perth is such a market. Upswing market is self explanatory like Brisbane. Booming market is Hobart when its going double digit growth. Melborne is slowing down from few years of double digit so I am calling it a peak and Sydney just doing slight downward trend as has peaked might last year. Theres no hard and fast rule, it a combination of experience and reading a combination resources.

 

You are all missing the big ingredient - finance /credit.

Its changed...and so to will "cycles"

They'll still happen, but slower and lower than everyone has become used to ....

Cant bake the same cake with the main ingredient being available on a much more restricted basis

 

Same here

 

There was mention that the new property cycles willl be 10yrs plus from now on. I can see evidence to support this. However i havent been through enough cycles to be more confident.


However even though the market seems ti be slowing.
I just cant see more than a few % drop at the best in the areas im lookiny at in melbourne

Who has a crystal ball?

 

the only constant is change. Give me one decade where there are no major changes to finance/tax/interest.

 

Sure... of course things change, but here's the bottom line.

I'll give you the best part of 3 decades where there were no real changes to the way debt was treated. ie "actuals" . In fact, the treatment of existing debt got so generous that even after the GFC, and even if it was15 or 20 year IO debt , it wasn't loaded with any buffers whatsoever . Carrying lots of long term IO debt was not punished or penalised by lender policies. That's over.

I'll give you 3 decades where rates fell consistently rather than rose consistently. ( with a couple of short term exceptions along the way ) Combined with the increasing use of "actuals" this was POTENT for supercharging borrowing capacity. That's also over.

I'll give you 3 decades where HPI's were used for living expenses rather than HEM's. Also POTENT for borrowing capacity, and also over.

And I'll give you 3 decades of strong wage inflation and massive increases to middle class welfare... FTB A and B - also POTENT for borrowing capacity and also over. ie neither wages nor welfare are inflating any more.

And I'll also give you leverage. if you had a 20% deposit before deregulation 3 decades ago, the increases to borrowing power noted above, plus access to Lenders Mortgage Insurance, allowed someone with a 20% deposit to use it as 2 x 10% deposits, or 4 x 5% deposits.... supercharging their ability to own multiple properties with the same amount of money that used to allow them access to 1 x property. But the expansion of LVR's is also over.

The result of the 5 items listed above was that Debt to Income ratio's expanded from a maximum of 3.5 x income when banking was deregulated to a possible15-20 x income if the correct lenders were used in the correct order. That's also over. While DIR's arent being directly prescribed by APRA or by ASIC , the reality is that the changed servicing calculator policies ( assessment rates and HEM's) which are being prescribed are resulting in maximum DIR ratio's falling to 7 or 8 x income at most lenders. A little more at some lenders... a little less at others...but a long way short of 15-20 x income that used to be possible.

The elastiic band simply doesn't have any elasticity left in it. And as we all know, when you are holding a piece of elastic that is stretched about as far as it can be stretched, in order to restore elasticity you need to move your hands closer together. ie deleverage.

So I give you 1 decade - the next decade... where debt reduction will be king - especially non income producing non deductible debt reduction.

#aheadofthecurvesincebeforeAPRA

#stillaheadofthecurvetoday

#theoriginaldebtreductiongladiator

 

I am not disagreeing that finance is harder for the serial investors, but aside from Sydney and Melbourne, most of the other cities are more affordable than 10 years ago in terms of income/price ratio, and now record low interest for OO and still low investment loan it is icing on the cake so I quite optimistic that are plenty of scope to grow ones things tidied up for those left out cities.
Debt reduction or increase will be strictly personal financial circumstances so I would not comment on that.

In the context of the subject, the latest finance changes will not disrupt the continuation of cycle in a significant way aside from slow it down a little.

 

I agree that cheaper cities and regionals will see money flow their way- simply because that's where budgets (borrowing capacity) will dictate money has to flow ...its why I have said in other posts that cities like Adelaide and Perth and many regionals will start seeing recoveries in the next 2-3 years, but the cycles there will be shorter than previously because ceilings will be reached earlier... and once all cities are at their ceilings, what then?

Back to debt reduction... or wage inflation and rental inflation... but given you need @ 50-60K gross extra income per million of debt to restore pre APRA capacity, wage and rental inflation alone will take a looooong time to improve the borrowing capacity of many