(This article was first emailed to Real Property Advice subscribers and clients in March 2019)
MidCycle Slowdown is here!
This year has seen the property market slaughtered in the media. For the last 3 months, every single day I get emailed or referred to the latest article about how bad the market is. This week I saw the Sydney Morning Herald report on the market, which stated:
“The falls nationwide are greater than the largest falls in the time of GFC.”
Statements like this sell news and keep Facebook groups like ‘Don’t buy now’ and ‘Who crashed the economy’ with lots of material to feed their followers. (I am a follower as I enjoy a good laugh).
These pages are as balanced as the ‘Flat Earth believers’ page. (another good laugh)
Take a breath; sit for a moment and consider your personal situation, your work or business finances, your investments.
No noise, no media, just considered thought……
Now let me ask you this?
Do the market conditions right now feel the same to you as they did when GFC hit?
Is your current financial position, worse, similar or better then when GFC hit?
When you cut out the noise you may find that this is not actually GFC 2.0 but rather what is known to us as a mid-cycle slowdown.
The midcycle slowdown is the ‘mid’ point in the full property cycle. In most cycles it is approximately 7-8 years from the end of the full cycle slowdown.
This makes 2019 the midcycle year.
I would expect from early-middle 2020 to see the media message reflect the positive changes that you and I will see months before they change their tune.
The midcycle slowdown is the after glow of the first phase of the property cycle and really is the market playing catch up. Midcycles generally always happen from an external forces, and not land forces. This means that a funding, legislative or social disaster (manmade or natural) is what causes the market to cool.
Mid-cycles look similar to the end cycle, but they don’t operate the same way when you dig deeper.
Look at this article from the Financial Review:
ANZ Banking Group’s home-lending growth has sunk to almost zero, forcing its chief executive to admit the bank may have been “overly conservative” in cutting investor lending and commit to ramping it back up.
With the Australian Prudential Regulation Authority removing the macroprudential investor lending caps in December, ANZ said on Tuesday it wanted to increase volume in the investor market after its investor loan book contracted 3.8 per cent in the past year.
ANZ said its home loan portfolio contracted $534 million in the December quarter, with owner-occupied and investor lending trending below the average of the banking system.
Sounds to me that regulation and reaction was the reason for contraction in lending. Considering that banks make money when they lend, they will always find a way around these rules or to package up their offering in a ‘new’ product or service. (Jason’s article last month talks about that here.)
To me this is an indicator of a mid-cycle slow down and not an end cycle crash. Banks were chasing their tails downwards in the GFC and this time around banks are a bit battered but, on the hunt, to get as much capital into the markets as they can.
That does not sound like GFC to me.
Enough with the negative stuff…
The upside to the midcycle is that it does allow for good buying in the right areas. Yep that is what we are doing right now for our clients.
Securing a property now that has been discounted is a great option in the mid-cycle. Especially as mid-cycles don’t last too long.
In fact the mid-cycle is over in a 12-18 month time period and due to that, is one of the main reasons the final 6-7 years of the 18.5 year property cycle, boom so much.
It happens like this:
- We come out of a midcycle quickly.
- We all look around and say to ourselves, wow we are so much more stable than the last GFC (big mistake)
- Capital flows in to the market and with the quickly renewed confidence,
- A massive buying spree occurs
- Taking us to the peak of 2026 when the next crash is imminent.
Midcycle’s create emotion, both in the entry, (like now) and the exit, when the market has quickly recovered.
And remember when emotions are high, intelligence is low. Use this time to take advantage of buying (if you are planning to), or restructuring, as banks provide better rates and products.
Prepare yourself now for the next run upwards because it is going to be a doozy.
Please note, I am not spruiking you to buy property, we have services that buy, services that sell. I am more interested in knowing you are getting my opinion of the market; an opinion that is built on 15 years of transacting and researching market cycles, so that you do not make un-necessary mistakes.
For more information on this article or anything property related, contact us via 1300 66 77 89 or via email here.
Since 2004 Scott Northcott has been helping people buy the best properties for their needs at prices that simply speak for themselves.
Scott has been instrumental in bridging the gap between financial planning and traditional real estate transactions through his property advice model. By carefully considering his clients’ goals and planning for market changes via demographics and trends, Scott designs a future proof outcome not only specific to the client’s needs but dynamic in its execution with performance indicators and exit strategies built in.