When we suffer a personal loss or bereavement, our mourning or grieving usually passes through several distinct stages over time, starting with a refusal to accept the loss that has just occurred. This denial often turns to anger, when we see that the loss is real and we blame those who we think have caused it. When this fails to help, we turn to bargaining instead, seeking to restore the loss in some way.
What is fascinating about the grieving process as far as the property market is concerned is that the first of these processes is underway right now as housing market investors, agents, advocates, educators and commentators are coming to terms with the ending of the Sydney and Melbourne booms.
The evidence is clear - auction clearance rates are falling and property sales declining, median selling times are on the rise and advertised stock levels are steadily increasing. At the same time, the total value of housing finance commitments across Australia has been decreasing for the last year, while the number of housing finance approvals has dropped steadily since last November.
Yet there is a consistent refusal to accept the facts, only calls of denial: “it’s the correction we had to have” or the “next phase in the property cycle”. The market is said to be temporarily “subdued” or “restrained” and growth is likely to return at any moment. While some reassure us that it’s actually a good time to buy in a buyer’s market, others say that while it is getting tougher, there’s nothing to worry about.
These reassurances will probably continue for some months until the next stage is reached, which will be one of anger. Then the search for the guilty will start. Who will cop the blame? It may be APRA for tightening lending regulations, or the Federal Government for instructing APRA to do so. Maybe the big banks will get blamed for restricting interest only lending and housing finance generally, or the State Governments for hiking up stamp duty on foreign investor property purchases.
When the anger subsides, blaming will turn to bargaining. If only governments would reduce or remove stamp duty on property purchases, or provide a decent first home buyer grant, increase negative gearing benefits and cut the tax on capital gains, then the market would quickly recover.
The facts are that none of these incentives is likely to restore Sydney and Melbourne housing markets back to their boom positions, because prices have simply risen beyond the capacity of people to afford the financial commitments required. While a crash is not likely, we are certainly facing several years of minimal price movement and sluggish sales.
Just like any personal bereavement process, it may take years before the experts become resigned to the new state of the market and then accept the way things are.
Meanwhile, watch for the next stage to unfold as anger replaces denial and the blame gaming starts.