Westpac economist Bill Evans has the property market decline wrong: Hotspotting's Terry Ryder
EXPERT OBSERVER
Some economists are concerned about the “wealth effect” of falling property prices. They need not be concerned about that.
What should concern them is their disturbing lack of knowledge about residential real estate markets. They have misunderstood what’s happening with prices in the many different markets around Australia.
Bill Evans, high-profile economist from Westpac, is one of those who think “falling property prices” will affect consumer spending. He thinks the Reserve Bank will be forced to cut the official interest rate a couple of times this year because of this hypothetical impact of falling property prices.
Mainstream media, as if so often sadly the case, have given great credibility to these forecasts. Journalists have forgotten that Westpac, until last week, was predicting that the cash rate would not change this year and that the next move would be a rise. Now they’ve back-flipped. What does that say about their forecasting?
But the big issue is the lack of understanding about real estate markets. Like most economists, Evans and his cohorts turn their attention to residential property only occasionally, and, when they do, they generalise. They talk about “the Australian property market” and what’s happening with “Australian property prices”. This is a clue that they lack depth of knowledge.
This kind of generalisation is the curse of real estate consumers across the nation. It’s the source of much of the misinformation that permeates mainstream media and which confounds consumers.
Here’s the difference between those Westpac economists and the Hotspotting team: we spend all day, every day, researching residential markets. They do not.
And here’s what I know to be true: locations where property prices have fallen a lot are in the minority. Most markets around the nation have prices that are rising or are holding firm.
In Hotspotting’s latest location-by-location analysis of sales activity and prices for every suburb and town across the nation, we have identified a number of “danger” markets – those where demand is falling, prices are down and vacancies are rising.
But these danger locations are greatly outnumbered by those where markets are rising. Our national survey finds only 8.5% of locations are negative – what we classify as “declining” or “danger” markets. By comparison, 20.5% of locations are strongly rising. The vast majority – the big lump in the middle – comprises markets where demand is steady and prices solid.
Here's what economists do: they look at a graph or table which describes “Australian property prices”. This is a figure from someone like CoreLogic which provides an average figure for the change in prices for the capital cities. Currently that’s a minus figure because of the weight of Sydney. So they declare that Australian property prices are falling and that this is a national problem.
Apparently, Australians will be so distressed by this that they’ll stop spending in supermarkets and retail stores. It’s a ludicrous proposition.
In Melbourne, only the top end of the market is sharply down. Undoubtedly, the Tooraks of this world have seen prices falling significantly. But Middle Melbourne is remaining very solid price-wise and the cheaper outer-ring suburbs still have rising prices. Most of the suburbs of humble Melton are up by more than 20%.
That’s why most research sources (not including CoreLogic) have Melbourne prices overall down only moderately or, in one case, slightly up.
Meanwhile, Regional Victoria is going ballistic. Geelong, Ballarat, Bendigo, Pakenham, Officer, Warragul and dozens of other regional cities and towns have rising demand and very strong prices.
Hobart prices are still rising and Regional Tasmania is as buoyant as Regional Victoria. Both those regional markets are being supercharged by demand out of Melbourne.
Canberra is rock solid. As I wrote last week, it’s the strongest real estate economy in the nation and it’s doing the opposite to struggling Sydney.
Likewise, Regional NSW. There are growth markets spread right throughout the state. Newcastle and neighbouring LGAs like Lake Macquarie, Port Stephens and the Hunter Region municipalities have formed the strongest market in NSW in the past 12months.
Other important regional centres are rising, including Orange, Tamworth, Byron Bay, Dubbo and many of the smaller towns. Overall it’s a story of growth, in defiance of the Sydney trend.
Those past their best but still solid include Wollongong, Coffs Harbour, Port Macquarie and the towns of the Southern Highlands.
Brisbane overall is not rising strongly with prices, but it’s not falling either – and individual pockets are out-performing. It’s not hard to find suburbs where median prices have risen in double digits in the past year.
The Sunshine Coast is Queensland’s strongest market, with top-end suburbs around Noosa particularly buoyant.
Central Queensland locations are recovering from the previous malaise induced by the mining sector, led by the strategic city of Mackay. Others rising from the previous downturn include Emerald, Rockhampton, Dalby, Chinchilla, Moranbah – and we’re now seeing the first evidence of recovery in Gladstone.
Key regional cities like Toowoomba and Cairns have steady markets. Only time will reveal the real estate impacts from Townsville’s floods.
Adelaide is one of the really solid markets in capital city Australia. Demand is steadily rising and, like Brisbane, the city has individual pockets that are out-performing. There’s no sign of falling values here.
Perth has been in downturn for the past four years, but no longer. All the figures show recovery is under way – vacancies down, rents starting to rise, sales activity trending up and the top-end suburbs showing good price growth.
The only markets of significance where major price decline is prevalent are Sydney and Darwin.
Darwin just can’t escape its malaise because the underlying economy is so weak. The Northern Territory is the only state or territory which failed to deliver population growth last year.
Sydney’s situation is heavily documented but very poorly reported. There are plenty of declining markets and more than a few danger ones. But there are still many markets where demand is solid and prices are resilient.
One situation that media has completely overlooked is the defiant performance of the apartment market. Sydney’s gradual decline, which started back in 2016 long before the royal commission and other distractions that economists think important, was precipitated by the market’s reaction of price levels. Affordability became an issue at all levels of the market.
So now we have a situation where the cheaper products like apartments are still attracting demand and achieving good prices. Throughout inner and middle ring Sydney, there are many dozens of suburbs where the median house price is sharply down but the median apartment price is strongly up.
So where are all these Australians who are so afflicted by falling property prices that they’re going to hide their money under their beds and not spent. Outside of Sydney (but not all of Sydney) and Darwin, they really don’t exist.
And this is reflected in multiple surveys. The latest Westpac poll shows consumer confidence is up and is specifically not affected by all the negative media about house prices. The ME survey indicated most Australians expect house prices to stay solid or to rise this year and the Momentum Wealth survey found investors are planning to buy, with Perth and Brisbane their No.1 targets.
I think these thoughts from veteran real estate analyst Michael Matusik are also relevant: “It is somewhat sobering to find that the majority aren’t that caught up in all the incessant real estate chat. To most a house is their home and not something that needs a lot of day-to-day analysis or comment. The majority just roll their eyes at the daily house price indices. I am in that crowd.”
I, too, am in that crowd. The media and economists like Bill Evans misinterpret and over-estimate the impact of recent price decline on a relatively small number of Australians.
For most of us, a falling property market is simply not part of our day.
Terry Ryder is the founder of hotspotting.com.au
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