2019: Residential Property - The Year in Retrospect
Over the next two weeks I’m looking back over 2019 by reviewing what predictions were made this time last year about the coming 12-months. There’s little double that 2019 is a year of complexity and the year may well be a benchmark testing many previous trends.
Would I go so far as to say, ‘this year was a turning-point for many aspects of the residential market, in particular the apartment market’? Well that remains to be seen as I wrap up content here and also speak to a cross section of the industry, but first a summary of some of the key factors that were expected to influence 2019, and how some of them actually played out.
Predictions aside and now assigned to history, firstly let’s look at the many external factors that were expected to have a big impact on market sentiment.
Here we see that possibly more than ever before market sentiment did have a huge impact on buyers, and at time sentiment was so negative, activity almost came to a stand-still. Buyers were clearly unsettled and anxious for much of the year. One measure alone, auction clearance rates fell to record low levels, but did recently climb back to the 80%, partly because of a lack of stock.
House Prices a BBQ Stopper
Real estate values are almost always a guaranteed BBQ topic however, at the start of 2019 mention Sydney house prices and everyone’s attention was all about how long rising prices could possibly last. There were already some very solid signs that prices would be under much more pressure in 2019 and soon more generally start to fall.
What appeared to be a long-term trend, with prices only going in one direct, and that was up, was looking very wobbly, sentiment was already turning. It’s a trend that was first evident at the margins of the market as early as late August 2018 but in early 2019 was now spreading.
For several years up until late 2018, even first-time buyers were keen to get a foothold in the market, and most of the news was positive, the conversations full of energy. However, there were already signs and predictions that in 2019 that would all change, and it did.
What helped drive prices and demand down was perhaps not unexpected, and during at least the first nine months of 2019 one of the biggest shifts in buyer sentiment materialised. Apartment demand and prices and house prices in general became topics of concern.
Those who owned a home became worried about declining values, new buyers were not only worried about finance, they simply left the market. A trend that was also focussed on investors.
Investors left the market driven out by negative publicity, political uncertainty around aspects of negative gearing and capital gains. These were topics made even more onerous as the Federal Election loomed for the 18 May 2019.
What we saw was fear of missing out has been replaced with a commitment fear. Buyers of almost every type would dessert the market and the market was captive to the trend until mid-2019.
As had been anticipated market confidence and resilience from January to June 2019 absorbed a series body-blows and in my view a lack of confidence and an almost complete takeover of negative sentiment was to prove the biggest hurdle the market would face in 2019.
The loss of confidence is so important, and it remained a reality for much of 2019, although during the last three-months of the year greater stability was returning, even if sentiment remains tentative and guarded.
Worried about Economic Growth
In December last year, I mentioned a quote that The Economist magazine (27 Oct 2018) had on its front-page; Aussie rules. What Australia can teach the world. The article suggested – ‘But its (Australia’s) economy is arguably the most successful in the rich world.
Our economy had been growing for 27 consecutive years (now 28 years) without a recession and median incomes risen faster than many of our friends. However, I also noted that our economic ties to China and strong immigration, were directly influencing the property market.
Today both those factors remain, but with a much more complex and uncertain outlook. In September our economy slowed with GDP growth of 1.4% its slowest pace in a decade.
However, a number of other issues were predicted to help erode market sentiment.
These included the banking royal commission, the lack of a coherent climate and energy policy, political disenchantment, the constant sacking of our PM and the lack of ambitious reforms. Political issues with election both in NSW and the Federal Election would inevitably and did further slow activity.
Population policy was highlighted as a potential key issue that would impact property markets in 2019 and it looks like it will remain so in 2020. As we approached 2019, the question being debated was ‘are our major cities being swamped by unstainable population growth and excessive levels of immigration?’ That debate remains current, sensitive and on-going.
What we predicted in 2019 was that despite generally positive statistics, confidence and resilience would and did leave the market.
Many of the local and external negatives were expected to weigh on the market for most of 2019. However, the impact of a lack of confidence was predicted to start to peak by mid-year as a number of issues were ticked-off including the Federal Election (May), the NSW State Election (23 March 2019) and the completion of the banking royal commission.
However, together all these factors were expected and did combine to make the first six-months of 2019 very demanding. NSW also continued to fall from its ranking as Australia’s most robust state economy and the delivery of billions of dollars of infrastructure remains a sore point.
What we have seen during 2019 is that the failure to match population with infrastructure growth is both a big social and political issue, that will continue to have a big bearing on property markets.
The Federal Government’s reaction to the banking royal commission is still to fully materialise, and the prospect of an implied ‘credit crunch’ is still having a big direct and indirect impact on the market. This was perhaps an obvious prediction for 2019 but its impact has proved to be huge.
There’s More Tweaking Yet to Come
External predictions for 2019 were centered around affordability, access to finance, a possible credit-crunch, taxation policy, population policy and infrastructure policy and all bundled to produce fragile market confidence and terrible sentiment.
In December 2018 I described all of these very complex events as a sort of fog descending over the residential property market.
Now almost 12-months later, it appears to have been a pretty heavy fog that for many months eroded buyer and developer confidence and delayed resilience as buyers would look for clear vision of where to head to find their way out of the fog. The full answer may still be some way off however, it is clear that the ‘fog’ has now lifted to reveal much clearer and positive market sentiment.