08.24.2022 Local News

Share Market And Property Market: Is There Any Relationship?

Share Market And Property Market: Is There Any Relationship?

Shares or property?

They’re the two major ways Australians choose to invest their money but is there any correlation between the two?

Australia has one of the highest levels of share ownership in the world. In fact, thanks to compulsory superannuation, virtually all Australian adults who’ve worked after 1992 own – or have owned – shares.

Even outside of super, more than half of all Australians are directly invested in shares, according to the ASX.

We’re also increasingly a nation of property investors. Recent ATO data showed that around 20% of Australians – or more than two million of us – have invested in residential property. Meanwhile, in October 2021, Australian Bureau of Statistics data revealed that investor borrowing had hit its highest level ever. By May 2022, investors accounted for more than 33% of all loans nationally.

So what is the relationship between the property and share markets? Or is there one?

The long-term view: shares v property

In the past 20 years or so, Australia’s share market has experienced some sharp falls and steep rises – but the overall trend has been upwards. In the early part of the 2000s, the ASX200 – which measures the value of Australia’s largest 200 listed companies – generally performed strongly. In November 2007, it reached a market peak of 6851.5.

Then the GFC hit and prices fell rapidly.

By March 2009, the ASX200 had lost 54.5% of its value, falling to 3,120.8. It wasn’t until a decade later – or July 2019 – that it once again reached its pre-GFC high.

Over that same time, the property market also had its ups and downs. The national median price fell 8.5% during an 11-month period at the height of the GFC before recovering again to reach its pre-GFC high by the end of 2009.

From there, the national property market performed strongly. Sydney performed even better still, growing rapidly in 2010 – when they rose 12.7% – and again from 2013 to 2017, when a prolonged boom delivered growth of 65.7%.

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Despite this, the share and property markets performed within the range of each other. One study showed that in the 20 years to 2017 the average annual rate of return on Australian property was 10.2% compared with 8.8% on shares – this was despite the pummeling that shares took in the wake of the GFC.

How the stock market and property market have fared since COVID

When the pandemic first struck both the property market and the share market took a hit. On 16 March 2020, the ASX 200 fell 9.7% – its largest one-day fall in over 30 years. By late March, the ASX 200 was 35% below its 20 February peak. Then it started recovering… delivering a total gain of 13% for 2020 and 17% over 2021.

Australia’s property market moved in a similar pattern, although the falls were not as sharp or deep – the median Australian capital city property price fell 2% during the June 2020 quarter before gaining 0.9% in the September quarter. Prices then started rising – the national median rose 4.1% in the December quarter and Sydney prices rose 4.8%. Over 2021, the national median price rose 25.2% and Sydney’s rose 33.1%.

While both the national and Sydney median have fallen over 2022, so too has the ASX200, with the market falling around 20% between August 2021 and June 2022 – although it has since recovered by surround 10%

Share market: quicker in, quicker out

Broadly speaking, then, it seems that there is some long-term correlation between Australia’s property market and the share market. However, in the short term, the changes can often be much more dramatic with shares compared to property.

When people are fearful of economic conditions, the share market tends to fall almost immediately, whereas the property market takes some time to drop. On the other hand, when sentiment has turned, the share market will often rise much more rapidly.

This volatility often happens simply because shares are much easier to buy and sell – or more liquid – than property. There’s no need to pay stamp duty or engage an agent – all you need to do is press a button. So when people are feeling optimistic, the price can rise rapidly; when they’re feeling pessimistic, prices will fall more rapidly.

Can you use the share market as a gauge for what the property market will do?

While it’s true that the share market tends to lead the property market either up or down, it’s impossible to forecast the future. Successful investing usually depends on looking at the long term rather than trying to time short-term rises and falls. And, over the long-term, history shows that both the price of quality Australian property and shares both tend to rise. That’s the most important correlation between them.

Want more?

If you’d like to find out more about the state of the property market in Sydney’s eastern suburbs, get in touch with our team today.