Reports earlier this month the Australian property market is in big trouble, smacked of a famous quote allegedly credited to US writer Mark Twain following a seismic tabloid howler.
Whether it’s a fact or fiction, the Adventures of Huckleberry Finn author has been cited many times as saying after his obituary was mistakenly published by a US newspaper in the late 19th Century, “The reports of my death are greatly exaggerated.”
Equating doom and gloom to a 0.1% fall in Australian real estate values in May exaggerates the shape of the Australian property market.
Moreover, many commentators seem happy to overlook Australia’s rapid population growth, the shortfall of new properties being built to meet this demand, and an Australian economy that continues to outperform.
The Australian economy grew by 1.0% seasonally adjusted in the March quarter reported the Australian Bureau of Statistics in early June. This result means the economy is growing at 3.1% annually, which is above expectations. Michael Blythe, chief economist, Commonwealth Bank of Australia, Sydney told Reuters, “The economy got off to a good start in 2018, (with) substantial bottom line growth now running above the potential for the first time since about 2016.”
Aside from the doom and gloom headlines it generated, the report from CoreLogic revealed some good news stories for real estate. Hobart is still motoring along with an annual growth rate of 12.7%, while Darwin and Perth are showing signs of turning the corner because of renewed resource sector activity.
In the end, our capital city markets won’t collapse because property is an illiquid asset class. People don’t tend to sell up their homes just because Kim Jong Un is making Donald Trump a little grouchy, a royal commission is giving the banks a regulatory wakeup, or the Italians are threatening to leave the European Union…. again.
Also, regional markets are rolling along solidly according to CoreLogic, led by the satellite city of Geelong in Victoria, which is growing at 10.2% annually. The next best is South East Tasmania (8.0%) and the Southern Highlands and the Shoalhaven in NSW, which are increasing by 6.8% annually.
The reality is property prices in Sydney and Melbourne are in hiatus markets after a half a decade of outstanding growth. In more good business news, companies enjoyed a 5.9% increase in gross operating profits in the March quarter, noted a separate ABS report.
Following the pool of good news, Australia’s A$1.8 trillion ($1.37 trillion) economy has now entered its 27th straight year of growth. No wonder ANZ-Roy Morgan’s Australian Consumer Confidence increased recently for the sixth straight week – up 0.7% to 121.6, the highest in 15 weeks.
Don’t overlook the Reserve Bank’s decision in June to leave the cash rate on hold for a record 22 months. With rates holding firm at a historic low of 1.5%, comparatively affordable finance remains accessible to Australians with plans to buy real estate.
Population growth, which a significant property driver, shows no signs of slowing either. ABS statistics reveal our population is growing by about 400,000 annually. These people need somewhere to live, and while our construction sector is slowly catching up, the pace of population growth continues to outstrip the supply of new properties.
An improving outlook for employment is another positive for property, with the ANZ Australian Job Advertisements Index climbing by 1.5% in May. This result more than reversed the cumulative 0.7% fall over the previous three months. On an annual basis, jobs growth picked up from 8.7% in April to 11.5% in May.
In conclusion, population growth, more jobs, an ongoing housing shortage, historic low-interest rates, in combination with a growing economy demonstrate that any headlines about falling real estate values ‘are greatly exaggerated.’
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