Last month, we reported on the strong auction clearance rates experienced by Sydney in the new year. In the short time since, Sydney’s auction clearance rate has climbed by more than 10 percent. Domain has reported an 84% clearance rate from last weekend, up from just 57% at the same time last year. This significant transformation cannot be understated.
Separate data from Domain comes in the form of forecasts, and it’s clear they’re feeling as confident about the coming years as many others around the country. In a recent article, Domain economist Trent Wiltshire reported on their strong sentiment for 2020 and 2021. Notably, they expect Melbourne’s median house price to exceed $1 million during this period. In addition to this, the rate of unit price growth in Brisbane is expected to be second only to Sydney in 2020, becoming the country’s leading capital in 2021.
|Unit price forecasts|
|Median unit price, December 2019||2020 forecast||2021 forecast|
All of this positive property market sentiment is certainly a welcome change from the doom and gloom forecasts from various sources in recent years, almost all of which turned out to be false or highly inaccurate. Nevertheless, our experience through multiple property cycles and stages prompts the following warning:
Do not abandon research in favour of market hysteria!
It is important to communicate this to overcome a contagious attitude at this stage of the property cycle. The attitude that since things are looking good, it doesn’t matter where you invest or what you invest in. This is incorrect. The last time forecasts of the property market were this positive and widespread, we were experiencing the infamous property price boom that saw Sydney’s median house price exceed $1 million. At this time, one of our greatest challenges was convincing buyers to look elsewhere once the Sydney market had overheated, and they’d be better off investing in a more stable market. Many didn’t listen and paid a large premium for low-yielding assets which had plummeted in value by settlement. Others invested in markets growing stably and some stagnated, but stronger yields enabled them to await an upswing supported by more sustainable fundamentals such as infrastructure and population growth.
Even in the face of a strong market upswing, growth in 2020 and 2021 barely makes up for Sydney’s 2017-19 correction. However, some forecasters are more bullish which could bring forward a break-even point as early as mid-to-late 2020. Regardless of what happens in Sydney over the coming years, any price increases place further strain on any future interest rate increases. Not a very effective long-term investment strategy.
Chances are that a whole lot of property investors will enter or re-enter the market in 2020. The vast majority of them will adopt the herd mentality and fuel a volatile area-specific boom. Very few will invest mindfully and rationally. Make sure you’re in the latter camp, regardless of what kind of peer pressure is associated with it.