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Herron Todd White, a respected property valuation firm, has recently released their October 2018 property report which features the venerable national property clock.
The October property clock is an attempt by Herron Todd White (HTW) to visually showcase the state of the property market by key cities and regional locations. By looking at the stage of the Property Clock, you can see the stage of the property market in that location. The presumption being of course that the property market is a cycle that repeats itself over and over again, much like a clock that moves around the clock face in an orderly and sequential manner.
While we all know that markets do not always work in this orderly and sequential manner, it is a sound and generally good way to understand where the markets are at and what you can expect to happen in the future.
It is difficult to gauge purely through sale price values, like the October property clock does, as the true state of a market as property is such a diverse and discrete product. No two properties are exactly the same, which makes a true market pricing model very difficult. One of the most widely followed metrics used as a guide for the state of the property market is auction clearance rates: not a measure of price, but a measure of activity and demand. This metric is generally used as a precursor to either rising or falling demand, which in turn should drive prices either up or down (more demand for property promotes higher prices while lower demand equals lower prices).
So, what are the auction clearance rates telling us?
This data, compiled and presented by CoreLogic, indicates we are in the midst of a cyclical fall as auction rates drop significantly. It is this drop and the very noticeable reduction in auction clearance rates in both Sydney and Melbourne that is driving the popular “property is doomed” narrative we’ve seen so much of lately. In regards to Sydney and Melbourne, there is truth in this narrative as there is no doubt that both of these capital cities have significant price falls ahead of them.
Our focus is however on Queensland, so what is the prognosis for the Queensland property market and will if follow this same decline? We don’t believe so.
The major Queensland markets are fundamentally at different stages of the property cycle to Sydney and Melbourne. This is reflected in the HTW property clock, with Sydney in a falling market and Melbourne at the starting to fall stage. Brisbane, on the other hand, is in the rising market stage.
In our view, the Brisbane and Gold Coast property markets are being affected purely due to the consistent negative press trumpeting the falling property prices in Sydney and Melbourne, which quite incorrectly gets characterised as a national property crisis. It may be news to those that live in Sydney and Melbourne, but there are other property markets in Australia and they are at very different stages in the cycle.
The best way to understand the drop in confidence in the Sydney and Melbourne markets (and the incorrect assumption that the same thing is happening in Brisbane) is to look at this below data by My Housing Market. The actual auction clearance rate itself is not as important to consider, as this changes from market to market-based upon lots of factors, such as the percentage of properties sold via auction, time on the market and so on. What is most telling is the relative change over time. The auction clearance rate for Brisbane has dropped almost insignificantly in the past 12 months, yet Sydney and Melbourne have gone through the floor.
This is the story of the Australian property market right now. Property buyers need to dig a little deeper than the very simplified national news which unfortunately has stereotyped the entire Australian market as being in freefall.
The Brisbane market, Hobart market and even perhaps the Perth market are all showing positive signs. All three are coming off a very low base, not having experienced the huge boom that Sydney and Melbourne have had over the past 5 years. This sets these capital cities up very nicely for future growth when the property cycle upswing does take place, and the national press decides property is attractive again.