I am continuing to see, hear and read more terror stories about the housing boom turning in to a bubble, followed by a humongous bust.
Lots of these comments come from overseas writers and gurus who maintain that our prices are too expensive and therefore must come down. Other comments are from our own Federal Reserve Bank, which is clearly trying to cool down the market, without resorting to increasing interest rates. They don’t want to do this because it would slow the rest of the economy as well and increase the value of our dollar – bad for our exporters.
So how much should you & I be worried about the property sky falling on our heads any time soon? As it turns out, I think, not much.
Interest rates are low, unemployment steady, economy steady, population growth – natural & immigration growth strong, and supply still not keeping up. This would all have to change dramatically for our market to “bust.”
Let’s have a look at this chart below. It gives us some important statistics and information relative to the last peak in each capital city market, how much those values contracted, and then comparing today’s values. Have a good look, take a moment and think it through. What do you see?
Do you see a boom anywhere? I don’t. There is an argument that Sydney is way too hot right now, but these stats don’t agree. Yes, the Sydney market has run hard and probably will for a little while longer – these figures show that Sydney has pushed 8% past its previous high – inflation adjusted. Every other capital city has not reached its previous peak value. You could argue that the previous peaks were too high, and maybe they were. Most of the values fell post-GFC and are only recovering now.
Though Sydney has had two years running of double digit growth – that is what all the hot air is about. Look at which city had fallen the most from its peak – yes, Sydney. There is an argument that the strong recent growth has an element of catch-up in it, which in the past tends to overshoot, before settling again. Our national property commentators think Sydney is Australia. The figures above show it is not.
So where could you look for great capital growth investment returns over the next decade? There are so many factors to consider and it would be unwise to try to pick a winner just based on the above chart. It appears to me though that Hobart, Adelaide and Canberra have not performed well recently and I can see no real reason in the short term that they will. Though later in the decade, these values will start looking cheap against Sydney, Melbourne, Brisbane & Perth.
For mine, people getting in to Sydney now and to a lesser extent Melbourne, will have missed most of the wave. That leaves Perth & Brisbane – capitals of the mining states as the places to be over the next 5-10 years. Don’t be fooled about the “mining boom” being finished. What has finished – for this cycle – is the majority of the construction boom of new mines and infrastructure. Though Rio & BHP will still be investing billions to get their iron ore supply lines tighter and costs down, while increasing output. And Fortescue and Hancock are building new mines valued at over $20 Billion. New coal mines are opening in Queensland to feed new Indian markets – and this is the economy to take up any Chinese slowdown in economic growth. Which incidentally, is still over 7%, better than twice the healthiest Western economy in the world.
What is set to continue is the production boom – the big miners are making more money than ever before. Consider following where they are investing.
A last thought for you –