opinion
Ben Harvey: Wondering when the property market will turn? Gavin Hegney says there’s one thing to watch for

Real estate agents, car salesmen* and journalists. Look up any list of the least trustworthy professions and those three are always at the top. There are exceptions to the rule (not me, I’m as shifty as they come) and I happen to know two of them. John Hughes, who you may have heard has a car business that’s located just over the Causeway in Victoria Park, is one of the most honest, straight-to-the-point business people I have met. He is the complete opposite of the stereotypical car salesman (think Matilda’s father or Gordon Farkas from The Big Steal). Gavin Hegney (who is the voice of authority on the WA property market) similarly confounds his industry’s cliched reputation; a different species to the spivs and spruikers you see on reality TV shows such as Selling Sunset. I took a shine to Gavin a long time ago when he was speaking at an investment seminar I hosted. “You know those guaranteed rental returns you see advertised?” I recall him telling the audience. “That’s all priced in. Don’t ever think you’re getting a good deal with those. You’re paying for your own yield.” It was one of several truth bombs Gavin dropped about the real estate market and I have taken his word as one of the last words on property matters ever since. Gavin’s thoughts about the state of play are always pertinent but particularly so at the end of the year, when commentators start making predictions about what the next 12 months will likely bring in terms of capital growth, rental yields and vacancy rates. Counterintuitively, Hegney predicts the future by looking in the rearview mirror. He believes we are in what is known as an end-of-cycle real estate boom, so-called because prices start exploding when the music is about to stop. We had these in 1981, 1988 and 2007. An end-of-cycle boom comes after people make a load of money when the music is cranking. The high wages, bonuses and dividends synonymous with a surging economy are parlayed into bigger houses in better locations. Makes sense. Who doesn’t want a new McMansion with a butler’s pantry and theatre room? This type of boom lasts up to two years and sees prices jump by between 50 per cent and 70 per cent. Early-cycle booms are less generous and not as long-lasting. They occur after a downturn in the market. As low confidence suppresses demand, supply quickly starts dropping. Makes sense. Who builds a house that nobody’s going to purchase? Because a buyer’s confidence rebounds faster than the time it takes to build a home, the market gets whiplash. Prices spike for about six months as tradies remember where they put the Bunnings PowerPass. In that time buyers frantically outbid each other (interest rates are usually low because the economy is lacklustre, so they have good borrowing capacities) and the result is a quick-fire 10 per cent gain in values. Hegney reckons Sydney and Melbourne will experience early-cycle booms in late 2025. He believes Perth’s current late-cycle boom has some gas in the tank. Good news for people already on the property ladder, eh? Yes. But (and sorry to be a Grinch) there’s a catch. “The change in prices up and down are not as impactful as the debt,” Gavin says. “Whilst interest rates affect how much a person may borrow, it’s the appetite, or willingness to borrow, that’s most important.” That readiness to get a bigger loan from the bank is dictated by how secure a person feels in their job. Make sense. Who buys that new McMansion when the HR department is putting boxes of tissues in interview rooms? “Whilst unemployment affects a property market, it’s the fear of unemployment for the remaining 95 per cent who are still employed and their appetite to debt that has greatest impact on the property market.” So, if you want to predict when the music is going to stop, don’t look at prices or interest rates, look at how many people are getting Don’t Come Monday emails at work. *I was going to say car salespeople but I have never heard anything bad said about women who sell automobiles so decided not to sacrifice them on the altar of political correctness.

opinion
Ben Harvey: Wondering when the property market will turn? Gavin Hegney says there’s one thing to watch for

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opinionBen Harvey: Wondering when the property market will turn? Gavin Hegney says there’s one thing to watch for

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opinion
Ben Harvey: Wondering when the property market will turn? Gavin Hegney says there’s one thing to watch for