In what might be a case of the barber telling you, you need a haircut, a survey of property professionals thinks the property boom in Sydney and Melbourne has further to run.
The survey by the Australian Property Institute, conducted with valuers, fund managers, property analysts and financiers, showed that 44% thought the upward trend in Sydney prices would run another six months, while 33% expected another 12 months of gains.
For Melbourne, the results were similar, with 50% expecting rises to continue for 6 months and a third for a full year.
The problem with asking professionals in any industry for a forecast is that essentially their answer is their best guess. Of course, no one likes to admit that they are guessing, so strangely we call them forecasts or estimates.
Additionally, as far as I know, each participant doesn't have an in-depth knowledge of the whole market. As an example, a financier may have no idea which suburbs are already heading down, while a valuer may not see the falling (or rising) amount of new loans being written. Therefore, their guesses may be wildly more optimistic or pessimistic, depending on their particular 'local sector' mood.
As you might find with the imaginary barber above, half the survey respondents didn't think the market was in a bubble, despite Sydney median prices rising more than 15% over the past year. Sure, Sydney prices may not be in a bubble – but there's no way of knowing that until the bubble bursts (or not).
Unfortunately, the real data suggests home prices are already on their way down. Auction clearance rates are typically a good forward indicator of where the property market is going, and they are falling in both Sydney and Melbourne.
Sydney's auction clearance rate dropped below 60% over the weekend according to Domain Group, reaching 59.2% across 1011 auctions and Domain economist Andrew Wilson suggested clearance rates could drop even further. Melbourne's clearance rate was 70%, up from 66% the previous weekend – but that was impacted by the Melbourne Cup – and below 80% for the third week in a row. That is also still down from the high 80s-90s rates achieved earlier this year. Auction clearance rates under 50% for Sydney and under 55% for Melbourne are generally a good indicator that prices are falling.
Off-the-plan sales are no longer selling out on the day of release either, according to the Australian Financial Review (AFR).
Data from the Australian Bureau of Statistics also shows that lending to property investors has dropped dramatically, thanks to pressure on the big four banks Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC). Investment credit growth is also slowing according to CoreLogic RP Data.
With first home buyers struggling to get into the market after prices soared this year and investors being discouraged from the market, the downward pressure coming to bear on the property market is clear.
Foolish takeaway
Melbourne buyers advocate David Morrell hit the nail on the head when he told the AFR, "the fear of missing out has gone". Buyers are no longer rushing to get into the market or their next property and are instead happy to wait for prices to fall. That appears inevitable but may come a lot sooner than the experts think.
