10 key lessons we learnt from the 2019 property market

By Katy Holliday

What a year 2019 became for housing market news! We started the year off with continued doom and gloom from 2018 and finished it off heading back to a boom. This turnaround came as a huge surprise to many analysts and experts as we essentially saw two different housing markets. 

Sydney and Melbourne battled their way back after the Morrison government win, combined with stimulation from interest rate cuts, APRA loosening lending criteria and other factors that brought us back from the doldrums.

So what did we learn from all of this? Let's take a look at the real estate trends of 2019 and what we can take away from the year that was as we move forward:

1. The Australian property market is expensive!

OK, so this isn't exactly news. It's been this way for roughly fifteen years and unfortunately, the recent correction in prices did little to alter the stats.

According to the 2019 Demographia Housing Affordability Survey, "the median multiple of house prices to income is 5.7 times in Australia versus 3.5 in the US and 4.8 in the UK." In Sydney it's 11.7 times and Melbourne is 9.7 times. 

The data also shows that "the ratios of house prices to incomes and rents relative to their long-term averages are at the high end of OECD countries" and this is resulting in high levels of household debt.

2. The market moves in cycles from boom to bust

As history shows, the property market has a usually predictable cycle moving from boom to bust and bust to boom.

Contrary to popular opinion, this is not exclusive to a marked period of time such as the often touted seven to ten year cycle. In fact, boom to bust is influenced by social and economic factors such as market sentiment and the manipulation of interest rates. 

The Australian property market in 2019 is a prime example of this. After the coalition's federal election, buyer confidence soared and APRA finally loosened the screws on lending after tightening them up in 2017. 

Understanding how these real estate trends work should give you the confidence to buy and sell, knowing that after a downturn there will be a boom again - and so on it repeats!

 
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3. Market sentiment dramatically affects the property cycle

As mentioned above, buyer confidence or market sentiment has the power to drive the property cycle. As human beings, we are often ruled by emotion, and it seems so are our property markets.

The majority of us also like to do what everyone else is doing. This is often referred to as "crowd psychology", which is described as "bullish" when prices are rising and "bearish" when prices are falling. 

"As human beings, we are often ruled by emotion, and it seems so are our property markets."

As market sentiment grew with confidence after the Federal election, so too did house prices in 2019 in leading markets like Sydney and Melbourne, while auction clearance rates rose by up to 75%.

As these figures increase, investors make their way back to the game. On the flip side, low sentiment will see people saving more money and reducing spending in the retail sector and in property investment, which can have a negative outcome for the economy and drive unemployment. 

Ironically, market sentiment is highest at the peak of the cycle when people should be exercising caution and it's at its lowest near the bottom of the cycle when prices tend to be more attainable. At the very least, negative sentiment can drive prices further down, while positive sentiment can urge them back up faster.

4. We allow the doom and gloom to influence us

Try to block out the noise and the doomsayers. The media have quite a knack for using the emotion of fear to grab our attention. Don't let them stop you from nabbing an opportunity to become financially independent with the right real estate investment for you. 

Look out for property investment tips wherever you can and do your research. There are plenty of places where you can purchase a gem that will easily double its price growth within a decade - just stop listening to the negativity of those who wish to set you back.

 
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5. You can't predict the unpredictable!

Unforeseen circumstances can knock forecasters' best-laid predictions on the head. We saw this in May 2019 with the coalition's unexpected Federal election win. The knock-on effect was rather immediate and helped to stimulate the Australian property market. 

Before this outcome, many forecasters figured that the end of 2019 would see prices fall further. What actually happened was a complete turnaround with Sydney up +1.6 per cent for the year and a very unexpected upswing of +6.2 per cent for the last quarter, while Melbourne performed even better up +2.2 per cent for the year and +6.4% for the last quarter. 

Major unexpected events or circumstances don't always bring good news, like in the case of APRA tightening lending restrictions in 2017 that saw the boom turn to bust. 

6. There's more than one property market

Although we often refer to the "Australian property market" as such, there are actually multiple property markets that exist from state to state, city to city, and suburb to suburb. Location, dwelling type and prices are all unique to their own submarket. 

"Although we often refer to the 'Australian property market' as such, there are actually multiple property markets that exist on various geographical levels"

As we saw in Sydney during this last downturn, the top end of the market was experiencing much steeper price drops than the median level or lower end of the market where first home buyers tend to enter.

 
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7. Follow the demographics

Tracking demographics trends is one of the best ways to ensure you make a smart and safe property investment choice.

If you follow the demographics and pinpoint the target market and dwelling type correctly, this will ensure that even if you have to sell at a bad time your property will have more appeal and it will make the process of off-loading your investment quicker and easier.

Demographics, such as the average income, age, employment and household structure, are shaping property markets and can have a bigger impact on it than buyer confidence, interest rates or other influences.

8. Capital growth over cash flow

If you're playing the long game, capital growth will mean much more to you than positive cash flow. Yes, cash flow can help you pay down the mortgage, but building a large asset base will deliver the financial freedom that you seek. 

"Cash flow can help you pay the mortgage but building a large asset base will deliver the financial freedom that you seek"

Investors during the downturn, particularly in Sydney, were faced with high holding costs, proving short term property investments to be much riskier and sometimes not pay off at all, or worse - leave you with a debt. Also in Sydney, rents declined -1.5% over the year to date making yields less than lucrative.

Investing in an area that has potential for long term growth will possibly be the best property investment choice you make.

As you weather the ups and downs, if you've done your research and selected the right property, you will be in a much better financial position in the long run as the value grows over time. Many people believe, rightly so, that property investing is a long term game.

 
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9. Be wary of investing in high-rise apartments

If there's just one take away for you from the 2019 property market, let it be this real estate news. Not only did 2018 see the evacuation of Sydney's Opal Towers in Homebush due to large cracks appearing in the building, a repeat happened in 2019 with the Mascot Towers evacuated over subsidence and movement in the building.

Horrifically, owners have been dealt a cruel blow being forced to take out whopping loans to cover the expected repair bill of roughly $20 million, while the problem lies within the building's foundations. 

"If there's just one take away for you from the 2019 property market, let it be this real estate news: Now might be the time to take a step back from investing in high rise buildings and large scale developments"

Whilst Australia is dealing with the consequences of falling standards in construction of high-rise buildings and large scale developments, now might be the time to take a step back from risky investment choices like these.  

10. The stimulation of banks and interest rates

The Reserve Bank of Australia cut interest rates three times in 2019, taking the cash rate to an epic low of 0.75%.

Despite scepticism that rate cuts don't always work or can be slow to take effect, they have certainly motivated investors and allowed many first-home buyers the opportunity to get into the market quicker than they may have expected, pushing the market back up again.

 

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