Here’s what passes for analysis in Australian real estate: if Event A coincides with Event B, then Event A must have caused Event B.
This is what I call kindergarten analysis and we get a lot of it in the housing market.
It ignores the reality that there is also Event C, D, E , F and G taking place – and some of those may have had an influence on causing Event A.
The worst example of this shallow analysis is playing out in mainstream media every day at the moment.
Event A is rising interest rates.
Event B is that prices, apparently, are falling in some markets.
According to most economists and journalists, this surely must mean that rising interest rates have caused prices to fall – even though that has never happened before in past property cycles.
It never ceases to amaze me that this kind of shallow analysis of the property market is taken as gospel by the media and sprouted, daily, as fact.
Most of the reports published lately about property price decline, pin it all on rising interest rates.
But that is far from the truth.
The reality is that price decline is happening in relatively few markets – and that those markets where prices are falling were in decline long before the RBA started to lift the official interest rate.
At Hotspotting, we warned that markets like Sydney were coming off the boil long before it showed up in the price data – which always lags the market.
We chart sales activity – and what we observed was that Sydney sales activity peaked in the middle of 2021 and was fading in the second half of last year, before taking a big dip in the March Quarter of this year.
All of this made it inevitable that the price growth in Sydney would come to an end – and it happened long before interest rates started to rise.
We have observed similar trends in Brisbane, some parts of regional NSW like the Central Coast, other boom regional markets like the Sunshine Coast, and some parts of the Melbourne market.
Essentially, the top end high-priced prestige markets hit their peaks last year and were fading well ahead of the interest rate rises.
And this is where we have seen some evidence of prices falling, though not by much.
Drops in transaction numbers reflect an easing of buyer demand, which generally leads to prices slowing down – or, in some cases, falling.
What many media commentators fail to factor into their analysis is that there is a time lag in how long it takes data to come through, following the settlement of transactions.
What that means is that the decline in values we are seeing now, in some locations, actually started months ago but the data didn’t start to filter through until April and May.
Unfortunately, because most of the data about these price drops started to flow through roughly at the same time as the RBA lifted interest rates, un-informed commentators put two and two together and came up with minus five.
Here’s the reality: if interest rates were the sole factor determining property market outcomes, and if rising interest rates equates to falling prices, then prices would be falling everywhere – but they’re not.
Prices have come off in some parts of the Sydney and Melbourne markets, primarily in the top end suburbs, but not everywhere in those cities.
Looking across ALL the price research evidence, prices are NOT falling in Adelaide nor in Perth nor in Darwin – nor in many good regional markets.
According to the Prices Index published this week by SQM Research, house prices have actually grown in the past month in many of our capital cities – and overall in the regions.
Those where house prices have risen overall, in the past month, according to SQM, include Sydney, Melbourne, Perth, Adelaide, Canberra and Hobart.
According to this data, the capital city average for the past month is a 0.6% rise in house prices.
Nationally, house prices rose 0.3% and unit prices rose 0.6%.
That growth is happening AFTER multiple big interest rate rises by the Reserve Bank.
So, what will the nation’s economists and journalists do with that information?
They will ignore it – because their philosophy is: don’t let the facts get in the way of an entrenched attitude – or a narrative so simplistic that even an economist can understand it.
