Hotspotting

There have been big headlines around Australian in the wake of the new Federal Government’s first Budget.

They’re going to build a million new homes in five years to solve the housing shortage crisis.

There’s been widespread – although not universal – applause, because it looks and sounds great at first glance.

And, as you can imagine, the organisations that represent builders and developers are expressing considerable glee. No surprise there – it sounds like a windfall for them.

But that’s at first glance.

At second and third glance, it looks to me like a spectacular failure by the new Federal Government and by Treasurer Jim Chalmers, who is Federal Labor’s bright-eyed boy and no doubt their future leader.

It’s a spectacular failure because it shows that the Government does not understand the real issues here, how the problems were created and where the genuine solutions lie.

It’s easy to get the impression that prices are falling everywhere, because media provides very shallow and generalised analysis of what’s happening in property markets.

When you dig a little deeper and look behind the generalised figures, you find that there are markets within markets.

And the reality right now is that the Top End of our big city markets is the sector that is falling – and it’s dragging down the general median price figures for Sydney, Melbourne and Brisbane, creating the impression that prices are falling across the board.

They’re not – it’s the millionaire suburbs that are dropping while the affordable markets, where most people live, continue to perform well.

My prediction for real estate prices in the next 12 months is very different to the ones being published by mainstream media.

While there are forecasts from the usual suspects – mostly economists with poor track records in forecasting – that prices will fall 15% or 20%, my prediction is that property prices will rise in the next 12 months.

For a long time now there has been a serious disconnect between what’s happening in real estate markets in Australia and what mainstream media says is happening in Australian real estate.

But right now, that gap between media perceptions and reality is greater than ever before.

My view, very strongly, is that now is a time of great opportunity for property investors in Australia.

In many locations, the heat has come out of the market, so that investors can buy with less competition and urgency, meaning there are prospects to buy at better prices than a year ago.

At the same time, vacancies right across Australia are the lowest ever recorded and rents are rising faster than I have seen in my four decades of researching real estate.

There is a serious shortage of homes in Australia and all the projections suggest it will get worse before it gets better.

This means there is an accumulation of factors likely to create price growth in the near future and in the longer-term.

While much of the mainstream media commentary on the property market focuses on the highs and lows of the big capital cities, it’s Australia’s smaller capital cities which have really shone in the past two years – and they continue to do so.

Adelaide, in particular, is one of those shining stars.

Overall, Adelaide is a story of continuing high sales activity and on-going price growth, remaining generally one of the strongest markets in the country.

Our recent analysis of sales volumes across Australia shows that Adelaide has a large number of suburbs with rising sales activity and there is no evidence that it will experience a downturn anytime soon – in contrast to media rhetoric about markets declining everywhere.

As Covid lockdowns become a distant memory and life seems to be getting back to some level of normal, many in the media have begun to speculate that the trend I call the Exodus to Affordable Lifestyle trend will come to an end.

They believe that employers will demand staff return to offices, and that living and working remotely will became a thing of the past as everyone moves back to the cities and suburbs.

They won’t.

And the reason they won’t is that the Exodus to Affordable Lifestyle is not a response to Covid - it started long before that.

It’s a long-term trend and it’s here to stay.

As a research analyst on Australian housing markets, and a strong advocate of residential real estate as an investment, I always feel more optimistic when we are in periods of economic disruption – as we are right now.

Recent share market collapses have reinforced once again the relative safety of bricks and mortar - and provided a reminder that real estate often thrives in times of widespread economic disruption.

Recently Australian shares dropped to their lowest levels in months. Although many of those losses have since rebounded, we are undoubtedly in a period of volatility in share markets in Australia and worldwide.

Asian and US markets are going through periods of volatility as fears emerge of a looming recession.

While that’s not good news for those who have shares, it causes me to feel more optimistic about the future of real estate.

Here’s what passes for analysis in Australian real estate: if Event A coincides with Event B, then Event A must have caused Event B.

This is what I call kindergarten analysis and we get a lot of it in the housing market.

It ignores the reality that there is also Event C, D, E , F and G taking place – and some of those may have had an influence on causing Event A.

The worst example of this shallow analysis is playing out in mainstream media every day at the moment.

Event A is rising interest rates.

Event B is that prices, apparently, are falling in some markets.

According to most economists and journalists, this surely must mean that rising interest rates have caused prices to fall – even though that has never happened before in past property cycles.

Property markets are always evolving and reacting to changes in the economic climate – and the biggest trend currently evident across Australia is that buyers increasing are chasing affordability.

In most of our capital cities, it’s the affordable suburbs where buyer demand continues to be strong. And, at the same time, investors continue to buy in affordable regional locations that offer higher yields to compensate for rising interest rates.

Our quarterly analysis of sales activity for The Price Predictor Index shows there are still many supercharged suburbs and towns with increasing numbers of dwelling sales which will most likely to deliver future price growth - and the majority of these are affordable suburbs.

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There’s a lot of media speculation around about the downturn in what economists call “the Australian property market”, with doomsday predictions for house prices - but when you look at the actual data, that’s far from the reality.
There continue to be growth markets right across the country, as well as some which have been in decline since last year
For the Spring edition of The Price Predictor Index report, we analysed thousands of housing markets throughout Australia to determine the patterns with sales activity, which means buyer demand.

Find out more in the new Spring 2022 edition of the Price Predictor Index. Out Now!

The greatest source of misinformation about real estate – and the scourge of consumers trying to figure out what’s happening in markets across Australia – is generalisation.

And by that I mean, economists and other commentators speaking about Australia as a single market or about a major city as if there is just one scenario happening across the entire metropolitan area.

The Spring edition of The Price Predictor Index depicts a number of important instances where it pays NOT to generalise – because there are markets within markets.