In 2010 a
leading economist, Steve Keen predicted that Sydney property prices would fall
by 40% in the few years to follow. He received a lot of media time including
the respected 60 Minutes program.
Well here we
are 5 years later so how did his predictions go?
In the last
few years property prices in Sydney have risen by over 30%.
So if you
had listened to those predictions and not invested because of them or if you
had believed it when Mr Keen said on the 60 Minutes program that he was going
to sell his properties including his home to avoid the loss, then you would be
pretty upset now.
You would
have lost hundreds of thousands of dollars.
So why did
he get it so wrong and why did the media give him so much credibility and more
importantly so much free media time?
He got it
wrong because economists look in the mirror to predict the future. Imagine
trying to drive a car that way. Well that is what they do! They look at the
past, apply some fancy algorithms, some mumbo jumbo and hocus pocus you get an
answer.
Past
performance is certainly a factor, but it is not the whole story. We will talk
more about that in a minute.
So why did
the media give so much time to these predictions of doom and gloom?
Because we
buy it! We believe the doom and gloom and that sells media.
So why do I
mention this now?
Because
economists believe that a boom is always followed by a bust… and 30% is
certainly a boom. But I don’t agree…!
What usually
happens following a boom in one city, (but this won’t get any media time) is provided
that the demand remains then properties that have grown will slow down and
properties that have not will catch up.
The reason
is pretty simple:
-
Sydney prices rose because the demand outstripped supply.
- Hence people selling properties could ask ever increasing prices.
The demand is still there outstripping supply but Sydney might be getting too expensive for some, so investors will look elsewhere.
The Reserve
Bank is talking about dropping rates again in the next few months. They would
be doing that because although Sydney has seen almost exponential growth the
other states have yet to show similar growth. So the Reserve needs to stimulate
the other States.
Melbourne
and/or Brisbane are likely to be the next targets for investors.
An
equivalent property in Melbourne will be 30-40% cheaper (about $300,000) than
Sydney so that makes it an attractive proposition. Melbourne is also the
fastest growing city in Australia so that could quickly cause a supply problem
in Melbourne which would see prices rise over the next few years similar to the
Sydney price rises.
So if you
want my prediction of where the next growth is likely to be seen then I would
suggest Melbourne followed by Brisbane.
Like always
though not all properties will see good growth. Just like some areas of Sydney
have not seen 30% growth there will be areas in Melbourne that will
under-perform and areas that will over-perform.
If you are
considering investing in the next few months then give us a call…
1300 131099
