Market Update – May 2014

Michael Matusik recently discussed on his website ( in an opinion piece dated 8 April 2014 the Australian property cycle. I thought it was pertinent and this excerpt will give you an idea of where we are at within the cycle. I do recommend you read the full article called Cyclical Clarification on the website at Opinion:  Cyclical Clarification

“Given the amount of rhetoric about the housing cycle of late & the typical mudslinging that eventuates, it feels like it’s time, again, to discuss the obvious – that there is a distinct residential property cycle in Australia.

“In short
Past cycles have averaged between 7 & 8 years in duration.

“They have largely been smooth affairs – only on rare occasions have they rapidly peaked & troughed. Also, I cannot find – on an Australia-wide basis at least, and going all the way back through more than a hundred years of data – when a current market low fell below a previous trough.

“But I do think that residential cycles will get shorter & that they will become more ‘lumpy’. Future lows might even drop below past furrows. There is also likely to be less growth on an annual basis, throughout an entire cycle, than in the past. But essentially, what drives a property cycle & how it behaves is unlikely to change.

“Cycle 101
Past cycles suggest that residential property appreciates by 8.5% per annum, with 5 years of upswing (where values lift by 11% pa), followed by 3 years of downturn (where values drop by 5% each year).

“A strong upswing is often followed by a hard downturn & vice versa. Many things drive a property cycle – most of which are cyclical (no pun intended) – such as liquidity; economic growth; rising demand; investment returns; scarcity of supply & consumer confidence.

“But there is always a “factor X” which builds influence & is often the key ingredient/s that causes imbalance. At present these X-factors include SMSFs; Chinese buying; FIRB rules & the lower Australian dollar. You can see these in operation in Sydney; Melbourne & emerging, too, across Brisbane’s new inner city apartment market.

“Property clock
The property clock is a simple but effective tool which outlines where certain locations are positioned in the overall property cycle.

“Locations are also influenced by the position of other markets on the property clock. For example, sales activity & property values in south-east Queensland often increase after values rise (& become unaffordable) in Sydney & Melbourne. SEQ is an affordable alternative for investment to our two major southern capitals.

“Please note – that doesn’t automatically mean – as often is suggested – that values will automatically rise in SEQ as a result of overseas or interstate buying. More sales take place; not necessarily price or rental growth. There is absolutely no statistical connection in Australia between investor origins & medium to long-term price or rental performance.

“Many markets across Australia are in the recovery phase of the cycle. Barring unforeseen major changes in the Australian & world economies, we anticipate positive market conditions to exist for the next two years with a generic market downturn – driven by those cyclical factors discussed above – in about mid-2016.”

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