Property to Look Through

The stock market did it again. The US stock market looked straight through the lower than expected second quarter Gross Domestic Product result of just 1.2%. This is not a great number. It surprised everyone.

Yet the stock market held up, hovering just below all time record highs. This is because everyone knew that the more recent monthly economic data, remember the GDP was for March to June and we are already in August, was far superior to that of an economy running at just 1.2%.

It is also highly likely that this number will be revised upwards as often happens with US data.

So the media fear machine had something to run with for a few days, but it didn’t pan out that way at all. The US stock market simply remained firm. This tells us that there is, as we have suspected all along, a great “need to buy” out there in the US and in fact the global funds management industry generally. People have not bought the stocks they needed to have bought by now, in a market that continues to make all time record highs.

So far my think ”bottom of the future range” strategy, continues to pay dividends.

The example of the US stock market looking through that data release the way it did, is what we need to pay attention to when looking at the Australian property market.

Australian property is set to “look through” anything that is thrown at it. The market, as in the “potential” investors, is under-invested. People have in the main missed out on this on-going strengthening of Australia’s property market. Not all locations are stars, but the broad thrust of property values in Australia is unmistakable. Those that are not stars to date, may well have their turn.

There is no doubt that while the RBA rate cut from 1.75% to 1.50% is helpful, it is not the major force driving prices higher. There was plenty of room for Sydney and Melbourne to advance more slowly, and still be boom growth markets. Thats how extraordinary the previous period of growth had been. Even after slowing, these are still property boom type price gains that are occurring in these cities.

Their price growth will continue to pressure investment and home ownership migration away from those cities, as well as highlighting to the people of Brisbane and other centres, just how opportune their current price levels are. For the moment.

Due to the underlying “need to buy” that still exists in the property market, the RBA rate cuts are helpful, but not essential. The RBA may not cut rates again. Really it has been too little too late. The domestic economy is actually accelerating right now. Should it be the case, that the RBA remains on hold from here, remember at all times that property prices are not going up because rates are so low, but because of very real demand, both domestic and foreign.

Domestically people are still “under-invested”. Foreign interest, well we have so far only seen the tip of the iceberg.

Clifford Bennett