Hindsight is illusive, I think we’d all agree. ‘Hindsight’ is described as the ability to understand an event or situation only after it has happened: “With (the benefit/wisdom of) hindsight, I should have taken the job. In hindsight, it would have been better to wait.”
Hindsight bias, also known as the know-it-all-along phenomenon or creeping determinism, is the common tendency for people to perceive past events as having been more predictable than they actually were.
Where property markets are concerned hindsight is naturally an illusion however, in my possession I have a full copy of BRW (Business Review Weekly) dated 16-22 October 2008 with the front page headline reading: Safe As Houses. Can Real Estate Save The Economy?
Now, 13 years later comparing with today’s property market there’s lots of interesting and extraordinary reading in the BRW article, and perhaps more than a little hindsight to reflect upon.
In some respects, as many of the comments in the BRW article are hauntingly familiar, I’m tempted to speculate that in property markets while everything changes, nothing changes! To illustrate: following are some extracted predictions and comments, updated in light of today’s property market.
I’ve concentrated on about twenty key points of comparison which I’ll summarise into two posts over the next few weeks.
One of the early points from the BRW content was that property occupies a unique place in the Australian psyche aligned to the fact that markets are heavily influenced by consumer confidence. Nothing new there, it’s a topic I’ve often written about.
In 2008 as the GFC loomed, the question of confidence was being tested as house prices and the international banking system came under pressure. However, the question being asked by BRW was could confidence in the housing market be relied upon to hold firm and help sustain the local economy as financial markets panicked?
Today by comparison, as we emerge from one of the greatest health, social and financial crises in 100 years, what I see as amazing and positive market confidence appears to be driving housing demand and prices.
Where and by how much prices will be driven is very topical however, despite the impacts of the pandemic, there appears to be no lack of buyer confidence and resilience.
Migration levels both from overseas and regional areas was one of the dominant (positive) themes back in 2008. Then the outlook was positive and seen as a big driver of both the housing market and more broadly to the benefit of the wider economy. Research at the time was predicting that 200,000 new migrants each year would help hyper-drive demand, subsequent actual arrivals were in fact higher.
Today, with our international borders closed, the picture and the figures are very different. Overseas migration has fallen and is expected to remain so for some time, and this is a negative for the market and the wider economy that has long been sustained by very high levels of new arrivals.
However, the regional picture is very different, and regional populations and housing demand is strong and even booming in some areas creating concerns over housing shortages and infrastructure. There’s also a debate around how fast and when overseas migration might re-start and at what levels.
Supply is always a universal and ongoing concern for the housing market. In 2008 however, slowing rates of construction and shifting demographics, along with the ability of the banks to sustain finance were seen as ways to keep prices stable and prevent house price falls.
Supply today is a cause for added concern as the construction of new homes looks set to fall at the very time demand and prices are surging. This is despite the fact that currently new home construction is booming and over the past decade we have also seen a big jump in the supply of new apartments
Recent figures from the NSW Department of Planning forecast an estimated 31,000 dwellings a year over the next five years. However, that figure is less than the 38,210 homes a year forecast in early 2020, and down from the more than 42,000 new homes completed across Sydney in 2017-18 and 2018-19. Last financial year there were 32,450 new dwellings delivered.
A major concern in 2008 was the weakness in the sharemarket, described as ‘a sharemarket in meltdown’. The GFC crisis forced governments to bail-out financial institutions at times offering unlimited cash injections and there was anxiety that the crisis on the stockmarket might move into the wider general community.
Again in 2021 the contrast is very different; we have a booming stock market linked to huge government stimulus packages and record low interest rates. This has helped to shore up confidence despite the fact that today we have higher and volatile levels of unemployment.
Interest rates offer a remarkable point of comparison between 2008 and 2021, in fact the interest rate picture might never have been anticipated, even as we faced the impact of the GFC.
One early step saw the Reserve Bank lower interest rates from 7% down to 6%. The banks were, however, sensitive to bad loans and falling profits with the suggestion of a ‘credit squeeze’ that would impact the housing market. Overseas the banking system did encounter some very big problems.
I’ve found this an interesting exercise and next week I’ll look at some more trends between 2008 and 2021 focused on doomsday predictions about house prices, population demographics, (including some surprises) – the student housing market and how baby boomers fit into property markets.
Many of the trends given a kick-start on the eve of the GFC appear to fuel the proposition that today’s pandemic has seen some of these same trends accelerate or alternatively change or reverse direction.