First off my apologies, this is my first market update this year! So I’m merging the first and second quarter into this one.
So far the market has evolved very in line with what I expected and predicted in my Q4 2016. While the market continues to perform “strongly” per media, I see a different storyline unfolding: the high-end ($1m+) is oversupplied, the mid-tier ($500k-$1M) is at equilibrium supplies and the entry level ($0-$500k) is the only range undersupplied.
Aggregated across all areas/prices, the current supply is at 3.6 months. Considering 6 months is an equilibrium point, that still looks pretty good. However, the high-end ($1m+) is oversupplied, the mid-tier ($500k-$1M) is at equilibrium supply and the entry level ($0-$500k) is the only range undersupplied. Here’s the breakdown:
· $1M+: 12 months or more supply. Last year it was at 9 months
· $500k-$1M: 5.8 months supply. Last year at 3 months
· 0-$500k: 3 months. Last year at 1 month
Per the appreciation chart below, the above plays out visually where it’s clear a good number of sectors saw materially lower appreciation in 2016 compared to previous years. The exceptions were areas priced $0-$500k.
The reasons for what’s happening in my opinion:
· Job Growth – while still above average, I believe we’ve peaked in terms of super robust growth in this cycle. I believe for next 12-18 months we will see average job growth of 2-3% vs 4-5% as before.
· Interest rates – rates while still low have and will inch up a bit which impacts demand and pricing
· Affordability: Prices are up 45% since 2011. Average household income up 12% since then. Too much of a gap, even above average household income earner feeling the pricing hit in Ausitn which is impacting the $500k+ price bands
These are not long-term issues. In my opinion the first and third above will level out in next 15-20 mths. The 2nd will be simply something that people will adjust to, partly being helped by the other two balancing out.
I see the market averaging out as little to flat appreciation this year. Further broken down I expect: $1m+ will see 5% depreciation, $500k-$1m will be flat or slight loss in value and $0-$500k will see about 3-4% appreciation.
I feel next cycle upwards in all price bands kicks right back in somewhere in 2019 as there is simply too much growth in our economy at large with emerging growth in sectors such as healthcare and lifestyle.