Is the Australian property market heading for a price correction

There’s a bad joke I like which goes something like this:

FIRST MAN:        “I say, I say, I say, what is the secret of great comedy?”
SECOND MAN:  “I don’t know. What is the secret?”
FIRST MAN:        “Timing.”

My tenuous excuse for trotting that old-timer out, is the confusing messages we are receiving from Australia at the moment about what exactly is going on in their property markets. I use the plural deliberately there, because there are significantly different trends being seen in each of the country’s major state capitals.

For example, a friend of mine who bought a landed house in a good suburb of Melbourne two years ago, tells me that he has seen the value of his property rise by 30 percent. And yet in Perth, median landed house prices have only risen three percent in the same period, with most other cities falling somewhere between the two (Sydney 20 percent; ACT 15 percent; Darwin 14 percent; Adelaide 11 percent; Hobart nine percent; Brisbane six percent).

Investing in Australia right now is all about timing and location. I’ve been telling people for a while to be wary of Melbourne, because despite its strong economic performance, price rises like those in such a short period of time are almost bound to need some sort of correction. Especially with the prospect of four percent inflation by the end of the year,  meaning that the Reserve Bank of Australia (RBA) is very likely to start easing up interest rates. If you own property in Melbourne, don’t panic though. Its long-term prospects are still very good and its median prices still lag about 15 percent behind Sydney. But now is not the time to buy in that particular city if you don’t have pockets deep enough to ride out the dip which I see coming later this year. And why would you want to do that any way?

Sydney is a little safer, but again, it’s probably a little too high on the cycle to warrant impatience. My advice, and that of many people I have been talking to over there, is to look carefully at cities like Adelaide and Darwin which have performed steadily in the same period rather than spectacularly, but are far less exposed to the dangers of a price dip. Either that, or wait six months to see if I’m right about the interest rate rises, and then go bargain hunting in the prime inner city suburbs of Melbourne.