John McGrath: Bubble? What bubble?

John McGrath: Bubble? What bubble?

2 June 2017

Writing in Switzer Daily, property expert John McGrath calls for calm amidst the cries of calamity. Will the market grind to a halt? Is the boom over? Will the bubble burst? Mr McGrath says this sort of chatter happens at the end of every boom.

“I have seen it time and time again over 30 years and the ‘doom and gloom’ predictions simply haven’t eventuated. 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.”

Yet that’s not how the story goes. Maybe this is the start of a slowdown in Sydney and Melbourne. Or maybe it isn’t – no one knows. There are small signs that the market is slowing – generating these headlines and predictions of price falls. Mr McGrath says, “the key is not to panic.”

“After a long period of price rises – about 75% 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.”

“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.”

A market crash is not imminent, according to McGrath.

“Property is not an asset class that changes overnight. We have too much population growth fuelling demand and too much of an undersupply to experience a crash.”

The slowdown after a boom comes very, very gradually. Mr McGrath feels that the Sydney and Melbourne markets could be at their peak for this growth cycle. However property prices will very likely keep growing, just not as fast each year.

“Property is a fantastic vehicle for wealth creation if you can hold it long term. That means riding out market slowdowns without panicking and staying focused on the goal of debt-free ownership down the road.”