We've written a lot about the property market this year. In fact, at times we’re asking ourselves what is actually left to say?
We've covered property prices, interest rates, auction clearance rates, economic conditions, buyer confidence, seller expectations, stock levels and just about every forecast from the RBA, the banks and economists about what could, should or might happen next.
But there are parts of a property cycle that receive remarkably little attention, and one of the most important is human behaviour. It doesn’t show up on any spreadsheet, yet sentiment is one of, if not the most valuable things to understand.
In our world, we're hearing all the same conversations that we’ve heard time and time again. We're observing the same behavioural patterns buyers and sellers display in these conditions and, while the circumstances surrounding every property cycle are different, the human response to them is remarkably familiar.
After more than three decades working through different property cycles, we've read this book plenty of times before. The characters change, the economic backdrop changes and the headlines slightly adjust, but the plot has a habit of following a familiar course.
Fear gives way to confidence; confidence can then become excess. Conditions change, denial follows, then acceptance, adjustment and overreaction. Eventually things stabilise and the cycle begins rebuilding again.
As we’ve mentioned many times, there will be no bell ringing when one stage finishes and another begins, which is precisely why understanding behaviour matters. History won't tell us the exact day a market reaches its bottom, but it gives us an extraordinary catalogue of how humans respond when fear, uncertainty and money collide.
And we've seen it all.
Remember the toilet paper madness during COVID? There was never a rational need for Australian households to fill cupboards and garages with months of toilet paper, yet shelves were stripped bare, and people were fighting over rolls because everyone else appeared to be doing the same thing.
More recently, concerns emerged about petrol supply, queues formed at service stations, jerry cans came out and increasingly catastrophic predictions quickly followed.
These aren't stories about unintelligent people, although that could be well argued. They're prime examples of what people do when uncertainty spreads through a crowd. We see people protecting themselves, headlines reinforce the perceived threat, and instinct tells many to do something before it's too late.
So, the key takeaway is that we don't simply respond to risk, we overcorrect.
Property markets are no different.
Think back only six years. When COVID arrived, there were forecasts that substantial property price falls were imminent. Then interest rates collapsed to never-before-seen lows, Australians were told rates were unlikely to rise for years, lockdowns changed how we lived, and attention shifted heavily towards our homes.
Very quickly, the perceived risk changed. It was no longer a fear of paying too much, it became a fear of missing out and the headlines went into overdrive.
Buyers stretched budgets, auctions became fiercely competitive, properties sold immediately and prices rapidly accelerated. People routinely paid hundreds of thousands above expectations because recent price growth was projected forward and waiting suddenly felt more dangerous than buying.
Perfectly intelligent people became caught in collective behaviour. The market wasn't simply rising, human behaviour was amplifying it.
The same thing has happened throughout financial history. Investors chased technology companies during the dot-com boom because extraordinary growth was expected to continue. American housing became a seemingly one-way bet before the Global Financial Crisis. After major share market crashes, investors have repeatedly become most fearful after enormous amounts of value had already disappeared.
Different asset classes, different countries, different decades, yet human behaviour and reactions barely change.
