How to Know Where Property Prices are Headed

Last week, we posed the question, ‘are house prices set to plunge in 2019?’

Many suggest so.

But rather than reading what the analysts say, I suggested you could work it out for yourself.

And I gave you a few indicators to look at. Such as loan arrears, real estate investment trusts (REITs) and unemployment figures.

None of those indicators suggested an imminent 40% to 50% plunge in house prices.

This week we again look at property by taking the broader view.

You don’t have to view everything within 365 days. Look at the longer journey over time.

Now, as a stock market investor, let me use some stock market analogies.

Stocks don’t go up forever and ever in a straight line.

When any stock has a big move up. You know at some point it must retrace. Or, at least go sideways for a time.

It must do this to consolidate prior gains.

And it’s perhaps likewise for the property market.

How have house prices fared over the last few decades?

Here’s a chart which puts the whole thing in perspective. It nicely illustrates the point I want to make.

House prices in Melbourne and Sydney did fall in 2018. But look broader than the confines of 365 days. How have house prices fared over the last few decades? What is the overall trend over time?


Source: The Sydney Morning Herald

Yes, house prices have come off their peak, but are still almost double where they were a decade ago. It puts the recent falls into context.

It’s not totally surprising that house prices have had a bit of a pullback.

Keep the bigger picture in mind

And here’s another chart from the Australian Bureau of Statistics. Again, it gives you the longer view.


Source: Australian Bureau of Statistics

It shows Australia’s projected population growth.

It took 200 years or so for Australia to reach 25 million people. But going by this ABS projection, it will take no more than a few decades to double that and reach another 25 million. What might that do for house prices over the longer journey?

So, ‘is now a good time to buy property?’

Again, as a stock trader, I’ll fall back on a stock market analogy.

Some people try and pick the bottom in the stock market. My experience on that is that the market will rarely make you look that smart.

Perhaps same goes for the property market. Trying to pick the bottom is a fool’s game.

Just get into the market, if owning your own home or investing in property is part of your overall wealth strategy.

Over the longer journey house prices keep going up.

This has to happen. Yes, there will be hiccups along the way, but progress, improved infrastructure and population growth over time will and must bring higher house (really land) prices.

If property is part of your wealth strategy, here’s a little buying tip for you…

Make use of a buyer’s advocate. Most of us will only buy a house, once in our lives. No wonder we do it all wrong. A buyer’s advocate buys houses almost every other day of the week. They know the market, they know what to do to clinch the deal. It just might put the odds in your favour.

Your takeaway…

Is it any wonder house price have come off their highs?

They’ve practically doubled over the last decade. They were due a pause to catch their breath.

On top of that, leading up to the Royal Commission into banking, lending has tightened.

Keep in mind, it’s what the bank allows you to borrow that sets house prices. It’s impacted house prices a lot.

Also, the recent crackdown in investment loans has curtailed development. That could lead to bit of a housing shortage in a few years’ time.

And should credit start to loosen once more (it does every cycle), the combination of a potential housing shortage and looser lending will all feed into the speculation and the bidding up of house prices once more.

And away we go again. Same old, same old.

But know this!

There are times when you shouldn’t be buying. Such as at the real estate cycle peaks.

If you want to know when that is likely to occur, then you need to know the US real estate cycle.

Because history shows the US economy is driven by a repeating real estate cycle which unfolds in a set sequence and time frame.

And, the Australian housing market just follows the US.

That’s very handy to know.

Understanding this real estate cycle is the absolute key to understanding the economy. It gives you an incredible advantage over other investors.

It’s how you can know where property prices are broadly headed. It is your guide as to when to buy real estate and when to stay out of the market.

And it gives you much more understanding about the stock market too.

That real estate cycle knowledge has been distilled into our real estate clock.

Terence Duffy,
Chartist, Phil Anderson’s Time Trader


Terence Duffy is an analyst and chartist, specialising in researching economic trends and cycles.  His primary focus is housing and land affordability. But you can also depend on him to offer his unique analysis of stock market charts. As Terence will show you, the charts often forecast, well in advance, the good or bad news to come — which he details in Cycles, Trends and Forecasts.


Leave a Reply

Your email address will not be published. Required fields are marked *

Markets & Money