In February, National Australia Bank suggested that house prices in Perth would continue to fall in 2016 because of weakness in commodity prices, as mining companies shed staff and the domestic economy continued to experience weak growth and high unemployment.
Here is the story.
The article notes the link between the commodity and housing markets – which is strong in regions and countries that are strong commodity producers (Australia, parts of the US and Canada, Latin America and much of Africa, for example).
I’ve set out my forecast for commodity prices in my recent report The Fifth Wave: Long-Term Commodity Prices and How to Profit from Them.
With that in mind, I am a keen follower of the property markets in commodity-rich regions. In Australia, the Western Australian property market, particularly Perth, is something to look at given the importance of mining and other resource extraction to the local economy.
Real estate prices recovered across Australia around 2012. But in 2012, commodity prices were still high and so Perth led the way.
See the graphic below.
Data source: Australian Bureau of Statistics
But from 2014 onwards (in particular) commodity prices fell sharply. It’s no surprise then that 2014 was a bad year for the Perth real estate market.
As real estate prices in Australia continued to grow, they stalled in Perth. And then they started to fall. This continued into 2015.
You can see from the graph above that during 2015 there was a major divergence between the general Australian market and Perth.
Note, however, that in the last quarter of 2015 house prices in Perth ticked up slightly.
So this begs the question: is the market turning around? From the evidence of the graph it’s possibly a little early to say.
However, this is where our cycles work on commodities helps. A turn around in property prices would be consistent with our commodity price forecast – we are on the look out for a low in 2016.
And expect also that rises from here will be seen in the housing market as companies once again expand and there is a return in demand for real estate.
Since the lows in January, commodity prices have had a good run. See the chart below.
The next test of these lows will be interesting. Should they be higher lows, we are looking upwards for commodities and real estate.