Why the property bubble doesn’t actually “burst”
In recent times I’ve heard about how the property bubble is about to burst. Now as a person who constantly looks at property market movements there’s a couple of things in these ‘stories’ that really get up my nose. The first is there is no such thing as THE property market and the property market bubble doesn’t burst at all. Now I probably need to explain what I mean by that so here goes.
You know ‘THE’ Australian share market is made up of a whole collection of different shares. Well ‘THE’ Australian property market consists of millions of properties that can be grouped into smaller property markets. Like each state, each region, each suburb. Even one street could have several property markets (the end near the beach vs the end near the highway). But when you hear about THE property market then the sub market referred to is often Sydney. The news right now is all about the inner to outer west of Sydney showing some significant price rises. Around 10% in a few months. This triggers the bubble, scare stories.
So should you be scared if you’re in that Sydney market? If you have a house or looking to buy one there then you should be at least interested. However if you’ve got property in Hobart there’s probably little need to stress about bursting bubbles as the houses prices there haven’t moved at all and probably won’t for a while. Onto the other bit that bugs me –‘ the bubble bursting’. Now I’m talking about residential property here and averages but hopefully you get the idea. I’ll use an example that many of readers will recognise, Newcastle. If you can cast your mind back to the period from 1999 to 2003 most markets in the Newcastle region saw significant price rises. Prices doubling, or more, over that period were the norm. Then the whole thing stopped. “The bubble burst”. So in black and white figures that meant the prices dropped by 11% between 2003 and 2009. I don’t think the numbers above should be referred to as a “burst”. Sure a slow-down, shrinking, easing, pausing, retreat, but not burst. The thing is residential property prices are very unlikely to burst, plummet or crash because 70% of participants in the various property markets are not investors. If you own a home ask yourself this, “When the GFC came along did you consider selling the house you live in?” Probably not. Neither did any other home owner hence no sharp drop in prices. Some speculators, the ill-informed and the unlucky will lose money when things slow in Sydney again, while my clients will be making money.
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