Agents are still publishing new listings during the lockdown with vendors seeming agreeable that there is no time like the present to achieve a great price for their home.

Just over 12 months ago we weren’t as calm and collected about a similar scenario and this time around there is limited government relief for businesses that are without any or reasonable revenue until the lockdown is lifted. Seemingly the difference is that we have been through this before and we know how it all plays out, right?

Maybe.

Most local markets remain strong and in the circumstances I have no doubt that Sydney will continue to perform well for an extended period, we will probably even start to see a steady increase in values for apartments as the inflection point between rents and interest rates has been surpassed in many scenarios meaning that positively geared property is more readily available.

These same properties have been in demand by first home buyers lowering their outgoings and buying their home, strengthening what was a languishing market, making the capital growth prospects a safer bet for investors to park their money for the next few years.

Don’t get me wrong, I’m no pessimist and I love a good property boom, however there are two sides to every story and it is often what you do not see or what is not said that can have the most impact.

So here it is, underneath the exceedingly optimistic environment we’re currently in, deep within the structure of our economy lie some trends that will leave us more exposed than ever when the market inevitably corrects.

In May 2021, NSW recorded an all-time high lending volume of AUD $7.715 Billion according to the Australian Bureau of Statistics (ABS). You have to ask yourself how do we collectively borrow over 50% more than the previous high of over AUD $5 Billion in August 2017 when the last market correction took place in an environment that has seen fluctuating employment figures and declining income growth?

Other factors at play that have an impact on lending volumes are, population growth and interest rates which are often leading indicators as to market stimulation and subsequent growth in lending.

The NSW population has increased during the same period however the rate of growth puts the lending volumes into question, if the population growth figures were relative it could be said to indicate that our economy has simply grown at a rate proportionate to the growing number of occupants albeit at a rapid rate in the past 12 months. Given the population growth in NSW of circa 13% which has taken place over the ten years to December 2020, there is a disconnect between market requirement and lending growth, the trigger to this behaviour seems to have been the decline in interest rates which has made the cost of borrowing cheaper than any time in Australian history.

With a steady annual increase in the number of dwellings built each year it would be natural to assume that with more housing comes the requirement for more lending needed to build supply. This would be a reasonable assumption and does play a part however NSW annual population growth from 2011 to 2020 averaged around 95,000 per annum or 24,000 per quarter which is far in excess of new homes being built.

This underlying demand has been constant over many years and could be attributed to the recent lending growth in the market, however, the only certainty is that there are more people fighting over less homes in a low cost environment which is pushing prices higher than ever before and creating a need for greater debt per household. Below data shows the NSW population with a decline in the number of dwellings owned without a mortgage along with a steady increase in the number of people renting via a private landlord. The trends outlined indicate that renting is an increasing lifestyle choice due to affordability while debt seems to be a recurring theme across more households than previously.

They say timing is everything in this game and while there is no time like the present to buy or sell, the points made do bring to question whether the current market is sustainable and what needs to be done to limit or avoid a serious correction. There are several pieces to the property puzzle being the occupants, owners, financial system and legislators, while we all have a part to play I believe now is the time for legislators to make moves to ensure the financial safety of our population and de risk the current market before we reach the point of no return, if not already there.

I will leave you on this note, Australia currently has historic high debt levels per household totalling close to AUD $2 Trillion, an uncertain economy with staggering government debt and lagging underlying demand while we keep spending more on residential real estate and borrowing more to do it, if and when there is another correction it is likely to be the most impactful yet.