Australian property market could be in for a long-term stalemate

Now we’ve established that the spring selling season has not immediately transformed the housing market from its winter of discontent, and the barrage of "spring has sprung" headlines have once again done the rounds and subsequently been exhausted.  We can perhaps start looking at the reality that’s facing a rather sick real estate market, which needs a little more than a Paracetamol to recover from recent lows.

It’s easy to come up with excuses to explain the current malaise.  Consumer confidence is a favourite – albeit overused – term.  However, it tends to suggest the market doldrums are nothing more than a brief bout of post-winter blues that simply require a short-term prescription of Prozac to recover.

The sickbed approach to market movements always assumes healing will eventuate sooner or later and based on the well-quoted premise of historical cycles, it’s not an altogether foolish assumption.

After all, although we’re consistently told the consumer has a new aversion to debt, it doesn’t stop Australians over-spending in areas where they perceive value – areas such the recent surge in overseas travel for example, and the lending boom for new and used vehicles – both of which have been influenced by the strong Aussie dollar and recent tariff cuts.

We’re fickle creatures when it comes to finance and completely subject to our ever-changing emotions.  How we gather our perception of confidence or fear in an economy broadly dictates how we spend or save our dollars –although, as the cost of living rises, there are limitations to every budget.

But for the housing market, at the very floor of sickness, lies the fear a far more serious diagnosis could be at play.  It may not be the long-awaited Armageddon bubble pop, however over the past two to three years many vendors have experienced a slow deflating puncture of lost equity as the weakness in home loan data and lower rates of turnover continue.

Even with previous and prospected interest rate drops there’s been little to motivate an uplift of market movement, and it’s clearly going to take more than a monetary stimulus to produce lasting recovery.

The problem reflects a game of stalemate – consumers have a need to purchase real estate but no desire to spend big in an arena of slowly deflating equity.

Unlike other industries, where price drops can attract a flurry of spending, Australians have been somewhat brainwashed by a decade-long credit-inflated property boom. Consequently, residential real estate is broadly considered a vehicle for investment over and above its basic value as a place of shelter.

It’s therefore highly debateable whether further drops in median values would motivate purchasers to perceive a bargain and get out their credit cards as they would for a local retail sale.  Furthermore, because the selling price is set with a large dose of emotion, it’s harder to recognise if a drop in price represents a true bargain.

As a general point, the last thing owner-occupiers will let drop in times of uncertainty are the mortgage re-payments.  The perception of security home owners gain from their principal place of residence is a tonic in turbulent times.

Not only this, but the home is an extension of the occupant’s life – a place of precious memories and personal passions that dictate why we often see vendors withdraw from the market rather than sell for a price they don’t consider worthy.

The owner-occupier market (which forms the largest market in Australia) splits the real estate landscape between the need to sell owners and those who’ll only budge if they can get their pre-conceived price.  This is the price they have formulated based on invested emotions and one that often bears little relation to the dictates of today’s property shoppers.