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Sunday, 10 September 2017

Melbourne correction nowhere to be seen

Melbourne powers on

There have been many predictions of a Melbourne property crash over the past decade.

The crash was variously to be triggered by Baby Boomers retiring, China, falling iron ore prices, the mining cliff, spiralling bank funding costs, slowing population growth, apartment oversupply, budget deficits, the loss of the AAA-rating, rising unemployment, higher interest rates, the Ebola virus, and dozens of other things. 

I've been pretty bearish on a few of these points myself - in particular I worried about the overbuilding point a few years back. 

And yet, Melbourne's housing market is powering on harder than ever. 

One of the biggest hurdles in recent months has been how the housing market would respond to additional levies on foreign investors and a crackdown on interest-only loans domestically.

July's housing finance figures delivered an emphatic answer: record homebuyer commitments of $6.12 billion in a single month, for a crunching +12 per cent year-on-year increase. 

Stock absorbed

The iron ore price didn't crash in the end, and bank funding costs have remained very low - discounted home loans are now available from just 3.65 per cent, and lenders are busily dropping their rates to entice new business.

Meanwhile, the Baby Boomer cohort became net buyers of property in search of return on their capital. 

One of the surprising outcomes through this cycle has been the sheer pace of population growth in Melbourne, which just got faster, and faster, and faster, at the expense of Perth, Adelaide, and any number of regional centres.

Until this rate of population growth turns down in Melbourne, even record building activity can barely keep pace, and vacancy rates have fallen to their lowest levels in about 7 years

Median asking rents for apartments in Melbourne are now about +12 per cent higher over the past 3 years, according to SQM Research, while asking rents for houses have increased by about +11 per cent. 

Unlike Sydney, Melbourne has affordable suburbs, and this is even helping to attract migrants internally from the harbour city.

One of the most vociferous property bears of the past decade, Philip Soos of LF Economics, now predicts that the next property correction won't happen for another 9 year, in 2026 (not that I'd reach too much into that). 

Jobs outlook

The global economy generally looks set for a stronger period ahead, with all regions now delivering growth. 

Australia's economy has added full time jobs at a tremendous pace in 2017. 

However, that dream run looks set to slow a little as we head in 2018, once residential building slows down, while the inflation figure will be re-weighted for the December 2017 quarter, probably reducing the inflation rate even lower than it already is.