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, especially if you own property in Sydney or Melbourne. Here’s my take outs:

It’s a 67-page report and well worth reading from front to back to get a really good idea of what could be happening in your area in the future. 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. Unfortunately, I know most people won’t buy it and could cost them tens or even hundreds of thousands of dollars in lost opportunity or slower growth.

Louis doesn’t think APRA (Australian Prudential Regulatory Authority) will re-involve itself in the market in 2020 and if it does so, 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 below.

Just as Sydney might grow at 10-14% next year 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 happen. Some property will grow by more and others may actually drop in value. Hence why you need to read the whole report and see the suburb summaries at the end. Even within that suburb you need to break it down further to then assess units versus houses, new versus second hand, parking versus no parking, main road versus cul de sac. Even when you have that level of detail, you still need to be paying the right price.

The report predicts that Sydney and Melbourne will pass their 2017 housing peaks in the 2rd or 3rd quarter of 2020 and so for those investors that have tried to pick the peaks and troughs of the market, blink and you’ll have just missed it. I spoke to so many viewers on Sky and to so many of my buyers agents clients in the last 2 years and the majority were trying to pick the bottom of the market. Why buy now as I think it will drop further in the next 3 months. They kept saying it and then at 9am on the Monday morning after the election it all changed, and 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 that opportunity has disappeared forever.

Beware of reading the numbers you want to see in the table below and think the market is back on and it’s going to double overnight or in the next few years. Louis is still very cautious on the market and doesn’t think it will be a repeat of the last upswing and so you might only see a few years of growth. If it does go too far, APRA may well jump in sooner rather than later to control it and balance the RBA reducing interest rates to boost the economy. No one wants a repeat of the serviceability restrictions, including myself and so let’s hope for a ‘slow and steady wins the race’ when it comes to market rises.

There’s always something changing in the economy and there will be flow on effects to the property market and so the report covers four of those scenarios depending on the cash rate, APRA intervention, US/China trade wars and the economy weakening further. Add to that the different geographical locations, price levels and property types and effectively anything could happen. That’s why you always need to take any predictions with a pinch of salt and look at the overall big picture of what’s being suggested.

Overall, I think this report is very positive for the property market and further confirmation that governments and large business has a vested interest in keeping the property market stable and slowly rising in value which is what every long-term investor is really after. Things do change though and just like we had APRA and the Royal Banking Commission change the market in 2017, other events may change the future that no one has thought of. So, 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.

Boom and Bust

This article is taken from an piece I wrote for Australian Property Investor Magazine.