Property market takes off (and a property cycle update)

Posted by Gavin Chau

On cue, the property market began moving when the rate cut was announced, with auction clearance rates spiking. This is a good signal for increased demand, and people are front-running the rate cuts even before they’ve passed through by the banks. People with money waiting on the sidelines have jumped on board. Auction clearance rates are highly correlated with property prices. Higher clearance rates, higher prices.

I should probably feel more excited than I do, but I’ve been talking about this for so long that it barely even registers. This marks the beginning of the final leg of the property market cycle—at least in the major capitals. The RBA has now lowered the estimated neutral cash rate to 2.9%, around 1.2% lower than where it is now. This means that by the RBA estimates, a further 1.2% of cuts would be neither stimulatory nor restrictive.

There’s a near-zero chance that anyone from the RBA is reading this blog, but I have a message for them if they are. The longer you delay rate cuts, the deeper the cuts will end up being. This applies to all central banks. While it is good for asset holders who will capture all the upside, these wilder swings in the economy are ultimately harmful to society—particularly those most at risk.

Nevertheless, I hope the regular readers have been listening and have their portfolios positioned appropriately. Its always easiest to get in position on the lows and simply wait for the market to come to you.

It’s a good time to revisit my model, which has been published yearly in the State of Play publication since 2020 and on this blog. Over the last five years, we have watched the cycle play perfectly in slow motion. The property market is huge, easily the biggest asset class in Australia, making up around 60% of household wealth, and the cycle moves slowly – it’s like trying to push a stationary aircraft carrier. It moves slowly at first, but it’s hard to stop once it gets going. It can easily lull you into a false sense of security where you think you have plenty of time to get until you don’t.

We can see that the property market in Australia moves in three distinct phases.

Early cycle runup to mid-cycle consolidation (pause)
Final bull run
Correction

We’re clearly in the middle of the final bull run, which tends to last around six to seven years. This began in 2022; however, the end-to-end cycle has been getting progressively shorter each time. My best guess for the cycle peak would be in late 2026 or early 2027, coinciding with the peak of the global liquidity cycle. It could run as late as 2028, but we won’t really know until we get there.

Posted by Gavin Chau, on 25th Feb 2025