Michael Matusik and Jayden Vecchio speak to us about the Australian property clock.
What is the Australian property clock?
You might have heard of it before as Michael has focused on it a lot over the past 25 years. The property clock simplistically shows us where different markets are sitting, at certain points of time. If you picture a clock on the wall, there’s obviously a market that follows the times and schedules accordingly. If you think about a clock being a wave, it takes usually seven years from peak to peak or trough to trough. What’s happening in Australia is that it is getting shorter and bumpier. There are periods of loss starting to emerge. It looks like the cycle is only going to be about five years instead of seven. That’s because of the way we get our news, it’s getting bumpier because the stock has changed and there are a lot more apartments/units, so supply and demand changes and it bumps around.
As things change, there’s a period of potential loss where property drops in value. It’s nothing to be scared of but understanding that presents better opportunities for you in the future. It’s a way of understanding where your properties sit across the four phases.
The first thing we do is draw four squares and put cross hairs through it, they’re the first phase of the cycle. Then the timing of a 12 hour clock corresponds to the phases.
First phase from 6:00 – 9:00
Next phase from 9:00 – 12:00
Next phase from 12:00 – 3:00
Final phase from 3:00 – 6:00
How do we understand this?
There’s a peak and a trough. At 12:00 it’s a peak and trough is at 6:00.
When we look at a market we try and pinpoint the geographic location. We look at the city (Brisbane) then break it down to a suburb like The Gap and break it down further into markets – detached house, vacant land etc.
There is not much science behind it. This information is readily available if you buy an Investment Magazine or go online and pay for some information. There’s a range of website available to you too.
We then use seven indicators
The number of sales taking place in an area, whether they are going up or down and the trend.
How fast they are moving up or down.
How much rent is moving, actual rent paid.
Underlying housing demand
What is the population growth? Is it increasing or decreasing?
New and existing supply
New supply is how many housing starts there are? Vacancy rate?
Existing is – the time on the market. Properties that are quicker to sell mean that the property clock is in an upswing, if they’re taking longer to sell it means they’re going into a downturn phase.
Incomes + Employment
Where properties grow in value, has a lot to do with jobs and where incomes are going up.
So there are seven key indicators which help you pinpoint where your market is.
It all comes back to supply and demand. Those detailed items are like seasons:
- Recovery is like spring, the right temperate
- Upswing is summer – getting hot
- Downturn is autumn – cooling off
- Stagnation is like winter – not much going on
They’re not equally distant from each other, however, most growth sales take place in two of the phases, recovery and upturn, which only takes about 30% of the time. Most of the property cycle phase is downturn or stagnation.
The best time to buy a property is in the stagnation, whilst the best time to sell is in an upswing.
If you divide the market and use this as a guide to buying and selling it is extremely effective, and this is an investor type tool.