SQM Research - Boom And Bust Report

If you read SQM’s Housing Boom and Bust Report written by Louis Christopher last week, no doubt you’ll be feeling pretty positive right now, especially if you own property in Sydney or Melbourne. 

It’s a 67-page report and well worth reading from front to back,  to get a good idea of what could be happening in your area.

My first tip is to buy a copy for $59.95 (and no I don’t get a cut!). No matter whether your property ownership or future property purchase is worth $200k or $1m+, it’s a tiny price to pay to either understand your existing assets or to ensure your next purchase is a profitable one.

While I recommend reading it for yourself, here are my key takeaways:

Louis doesn’t believe that APRA (Australian Prudential Regulatory Authority) will re-involve itself in the market in 2020 and if it does, it will probably not do so until late in the year. With the market running based on supply and demand, there should be some good growth in many areas, as seen in the table concluding this article.

While Louis anticipates that Sydney might grow at 10-14% in 2020, compared to the slightly lower Capital City average of 7-11%, just because you own or buy in Sydney, doesn’t guarantee that you’ll get that average growth rate (if it does indeed occur). Some property will grow by more and others may actually drop in value.

This is why you need to read the whole report and see the suburb summaries at the end. Even within each suburb, you need to break it down further to consider units versus houses, new versus established, parking versus no parking, main road versus cul de sac, etc. Even when you have that level of detail, you still need to be paying the right price in the first place.

Picking the bottom of the market

The report predicts that Sydney and Melbourne will pass their 2017 housing peaks in the 2nd or 3rd quarter of 2020 and so for those investors that have tried to pick the peaks and troughs of the market, be warned because blink and you’ll have just missed it.

Having spoken with many investors, some viewers on Sky and others my buyers agents clients, over the past 2 years, the majority have been trying to pick the bottom of the market.

Their common response was, "Why buy now as I think it will drop further in the next 3 months?" They kept saying this and then BANG,  at 9 am on the Monday following the Federal election it all changed.  They had missed it. They’re now scrambling to get finance, fight the busy auctions and chances are many won’t buy in time, and this particular opportunity will have disappeared forever.

Beware of reading the numbers you want and think that the market is back on and it’s going to double overnight or in the next few years. Louis is still very cautious and doesn’t believe it will be a repeat of the last upswing, and we might only see a few years of growth.

Regulatory bodies will play a part

If it does go too far, APRA may well jump in sooner rather than later looking to offset the impact of multiple interest rate cuts implemented by the  RBA in a  bid to boost the economy. No one wants a repeat of the serviceability restrictions seen in recent years,  so let’s hope for a ‘slow and steady wins the race’ situation when it comes to market rises.

There’s always something changing in the economy with subsequent flow-on effects that impact the property market.   The report covers four such scenarios relating to the cash rate, APRA intervention, US/China trade wars and if the economy weakens further. Due to the uncertainty surrounding these key investment influencers, realistically anything could happen. This is why you always need to take any predictions with a pinch of salt and look at the overall big picture when making your investment decisions.

A positive outlook overall

The report suggests that overall the outlook for Captial City property markets is positive.  It also provides further confirmation that governments and large business has a vested interest in keeping the property market stable and slowly rising in value.  Ultimately this is what every long-term investor is really after.

Just as we had APRA and the Royal Banking Commission change the market in 2017, other events not yet apparent may arise and once again change the investment landscape.  So with this in mind, invest with at least a decade as your horizon and ensure you have enough liquid cash to take you through any short-term ups and downs.