Re: Top of the cycle?...not yet.
Reply: 2
From: Dave
Hi Richard,
You'll get a stack of different views on this question, many of them
probably suggesting the top of the cycle is now.
My opinion, and that's all it is - my opinion - is that we have between
another 6-12 months before we hit the top of the cycle. This is based not
only on the feedback I received daily from those in the industry, but also
on what I see.
I know of at least 4 residential developments in Melbourne that were due to
be released for sale over the last four weeks, that have been put off for
another 4-6 months. Why? Great question. I would have thought that since
demand for residential property is still quite strong, and consumer
confidence is still reasonable, developers would have been falling over
themselves trying to sign up every person they can to buy at these 'top'
prices. Wouldn't you, especially in light of all the doom and gloom we see
in the media lately? Obviously, those that have access to more information
than the average person, i.e - many developers - know something we
don't...maybe they are waiting to sell when they know they'll get the top
dollar for their product. Most developers I've spoken to are very confident
that prices will remain strong, even increase, for another 6 months at
least. That's the reason they're holding off releasing some projects -
they're waiting for the time THEY think will be the top of the cycle.
I speak to valuers every day as well. I had a chat to one this morning, a
guy who knows everything about every residential development that's worth
knowing about in Melbourne. And, he sits on all the major lenders' panels.
I asked him his honest thoughts about the state of the market, and where he
thought we were in the current cycle. He said what I've been seeing myself
over the last 3-4 weeks. It's the TOP of the market type properties that
are starting to see a market correction already - properties priced $450K +.
There doesn't seem to be as many people willing to spend that amount of
money on a property right now. You could name all the recent international
and domestic events as some of the reasons that have collectively
contributed to this. By the way, the correction hasn't been in the form of
a price drop...not yet anyway. It's been in the form of a 'no price
increase' instead. The way Melbourne's been going over the last two years,
this is, relatively speaking, a significant sign of a correction. However,
the buyers that would have bought a $450K property a few months ago have
chosen to buy into the $300K-$400K price range instead. What's the result?
Yep, you guessed it - demand on these properties increases again, pushing
prices up further. I've seen this happen again and again lately...and it's
kinda freaky.
The extension of the FHOG will, in my opinion, lengthen the time taken to
reach the top of the cycle. Add to this low interest rates (and room to
move even lower), add to that the traditional post-Christmas 'mini-boom'
that happens around February, and you get another 6 months before signs of
the top of the cycle appearing.
This is just my opinion....but I reckon I've had it agreed to by enough
people in the Melbourne residential market, whose opinions I respect, that
I'm probably not that far off the mark.
I'd love to hear other people's thoughts as well.
Cheers,
Dave
p.s As for this time next year, we'll see. Remember the basics - buy the
right property today, in the right suburb, at the best negotiated price,
and I'd be VERY suprised if your property is worth less in 12 months.