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John McGrath bursts property bubble 'Myth'

John McGrath, founder of the McGrath real estate advisory empire, has dismissed concerns of a property "bubble" saying he has seen such talk "time and time again over 30 years and the 'doom and gloom' predictions simply haven't eventuated".

In his weekly column for the Switzer DailyMr McGrathoften dubbed Mr Sydney property for his longtime expertise, said the moment "we see even the slightest change in boom market conditions, the headlines begin".

"The end is called. The umpire blows his whistle. Yesterday we were in a boom, today we're on a slippery slope," Mr McGrath said.

He said the pace of growth in property prices would slow down but not stop. Property prices will keep growing but at a lesser rate per year.

"We have a minor correction, where the market will do as it has done before and give back about half of the prior year's growth, so that would be around 5 per cent," Mr McGrath said.

"Neither scenario is cause for panic. If the boom is indeed over."

McGrath chief executive Cameron Judson said speculation regarding a significant correction in the housing market had been overplayed.

"At McGrath we believe a pause in property price growth or, more likely, a modest fall would lead to a more normalised and healthier property market, giving both buyers and sellers more confidence to transact," Mr Judson said.

"I concur with John's assessment of the market. For the last 12 months, he has said that both Sydney and Melbourne markets are at the peak of this cycle and he expected a pause in the market, slowing to single-digit growth."

Mr McGrath's column comes as fund manager Philip Parker, who runs the Altair Asset Management, said on Monday the fund would sell  "hundreds of millions" of dollars of underlying shares in Altair unit trust and hand back the cash to investors.

Thursday's house price data is likely to show that prices fell in May. Photo: Michele Mossop

Mr Parker said there was an "impending market calamity".

He cited a roll call of reasons as to why investors should exit the share and property markets, including Australia's east coast housing bubble, China's hot property sector and increasing debt issues and the "overvalued" equities market.

In response, Mr McGrath, who is the executive director of the listed McGrath real estate group, said in reality, booms don't end this way – it's an extremely gradual process.

Adding, it's not going to happen – "yes, we've had phenomenal growth over the past five years. That doesn't mean we're due to have phenomenal declines.

"Yes, we might be at the start of a slowdown in Sydney and Melbourne today. Or we might not be – no one knows. But there's a few small signs that the market is slowing and that's why we're seeing these headlines and predictions of price falls. The key is not to panic," Mr McGrath said.

Slowdown welcome

"I'd actually encourage you to welcome a slowdown in growth. After a long period of price rises – about 75 per cent in Sydney alone, we need a period of consolidation that will put a floor under these new price levels and provide stable ground for home values to rise strongly again in the next boom.

"Of course, no home owner likes to see prices go down. But it's important to remember that if we do see some price reductions, they'll be small and short term. History tells us that good quality properties double in value every decade but growth is never in a straight line. More often than not, we have a few years of strong growth, a few years of little growth and round in circles we go."

Mr McGrath said the question on everyone's lips is whether the Sydney and Melbourne markets are turning.

"Firstly, no one can ever identify the exact time of a turn – it will only become clear to us several months after it has happened because once again, the property market changes at a very slow pace," he said.

Reflecting the changes in the property market is data from the ANZ Bank, released on Wednesday, which shows that total private credit posted a moderate rise in April.

Credit lending

According to the data, housing was the main contributor, although credit growth slowed across the owner-occupier and investor segments. The slowdown in investor borrowing will be encouraging for the Reserve Bank and the Australian Prudential Regulation Authority, and implies that house price growth is set to ease further.

Housing credit pushed higher in April, with growth of 0.5 per cent month-on-month, the ANZ report said.

"Both owner occupier and investor credit growth slowed slightly in the month, leaving total housing credit at the slowest monthly growth rate since July 2016, ANZ said.

"Recent out-of-cycle mortgage rate increases and APRA's additional macroprudential tightening at the end of March appear to be weighing on sentiment in the sector. The slowdown in investor borrowing suggests that we are past the peak in house price growth."

As such, tomorrow's (Thursday) house price data is likely to show that prices fell in May.

But, according to Mortgage Choice, the low rates combined with recent changes to various first home buyer initiatives has helped encourage more potential property buyers into the market.

Mortgage Choice's latest Loan Purpose Report found first home buyers accounted for 14 per cent of all loans written by the company in April, up from 12.2 per cent in January.

"In the first quarter of 2017, we saw a rise in the number of first home buyers taking out loans through Mortgage Choice," chief executive John Flavell said.


This article was originally published by Carolyn Cummins on May 31, 2017 via smh.com.au


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