Property markets don't like uncertainty

Property markets don't like uncertainty
Property markets don't like uncertainty

No-one envisaged the Sydney property boom would continue with similar gusto into 2018, which would have been its sixth year.

But the accelerated price reversal has caught many sellers by surprise after an extended period of double digit annual price growth.

Prices haven't yet fallen back by a prior year's growth, but negative equity does now loom.

This concern, along with not knowing just how much further there will be in falls, is creating uncertainty.

And property markets don't like uncertainty.

Falling prices are not the only factor hitting the feel good wealth effect. 

There are the recent sharemarket wobbles, the royal commission-induced tighter lending conditions, low wage growth, apartment oversupply fears, high household debt and the erratic political leadership.

The potential implementation of Labor Government policy hitting negative gearing incentives and hiking capital gains tax also has the markets worried as the Coalition government finally gets traction on raising the contextual consequences in a falling property market.

We are only starting to see the shocks of uncertainty in the property market.

And if it continues we will see it start being a drag on the wider economy too as fears about job security could see demand for goods fall, at least temporarily.

The RBA has modelling that found increases in uncertainty can trigger a downturn characterised by lower employment growth, weaker retail sales growth, and a fall in consumer confidence.

Olivier Blanchard, former chief economist of the International Monetary Fund, wrote in 2009 after the collapse of the US financial markets that there was “(nearly) nothing to fear but the fear itself.”

That was obvious at weekend auctions.

There's enduring purchasing interest, with extreme caution.

Some 18 contracts were issued to potential buyers during the marketing of a North Balgowlah brick home (pictured above) in a great bushland location with renovation upside.

But not one bid came at its onsite auction.

Buyers and sellers are gaining insights that real estate goes up, down and or plateaus in cycles.

This article first appeared in The Daily Telegraph.

Jonathan Chancellor

Jonathan Chancellor

Jonathan Chancellor is one of our authors. Jonathan has been writing about property since the early 1980s and is editor-at-large of Property Observer.

Tags: 
Strategy Property Risk

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