The current state of play in the property market has got many people scratching their heads.
Let’s take a closer look at what’s really going on.
BY PETER KOULIZOS
With the number of properties for sale at record highs and the number of properties actually selling at (almost) record lows, you would think we’re all spooked. But why?
To try and make sense of what’s happening now, we need to take a look back in time.
For the majority of the 1990s, the property market (and economy) was flat, but you could appreciate why this was the case. We had:
- High inflation
- High interest rates
- High unemployment
All this led to low consumer and business confidence. This is understandable as many Australians were out of work, especially blue-collar workers and middle management. You see, without a job or good prospects of securing a job, people have no hope of borrowing money to purchase a property. Unemployment in this era was hovering around 10 per cent. In addition to this, those of us with mortgages were paying a very high interest rate, well over 10 per cent. Some people who purchased commercial property had to pay interest rates of around 20 per cent!
Now, fast track to today. We have:
- Inflation under control
- Relatively steady interest rates, with a likely rise in the future (but only a small one)
- Very low unemployment
But still, we have low consumer confidence! Not only is unemployment currently at 4.9 per cent, the Federal Government, through their next budget, are forecasting an extra 500,000 jobs and an unemployment rate of 4.5 per cent. I can’t remember the last time the unemployment rate was so low. Most Australians who want a job either already have one or it won’t take them long to find one.
I can understand why the consumer market lacked confidence in the 1990s as the economy wasn’t doing very well at all. But why so glum now?
I know there are a number of factors contributing to a low confidence level but the main one is the delayed aftershock of the global financial crisis (GFC). However, when you look at the economy, we are performing exceptionally compared to most countries in the world. The reality is that Australia’s economy is currently one of the best in the world but the perceptions of consumers are otherwise. As your perception is your reality, it’s very hard to convince consumers otherwise.
The big question is how long will this last? Months or years? I don’t think we’ll have another repeat of the 1990s because the economic fundamentals are too good. In my opinion, this slow period will last for a number of months, not years. How many months? Well, that would be a good topic for another blog!!
Peter Koulizos is a property educator at UniSA and TAFE and the author of The Property Professor’s Top Australian Suburbs – a guide to Australia’s top suburbs for property investors and homebuyers, available from www.businessmall.com.au
