The Factors That Influence Property Cycles
What’s ahead for the Australian real estate market? Are you ready to buy or sell, but not sure when’s the best time to ‘bite the bullet’?
Questions about the future of real estate are being asked right across the country. As we adjust from a stint of super-growth to a more moderate phase in Australia’s real estate journey, buyers and sellers aren’t sure what to expect.
As we approach the close of 2022, real estate predictions are running hot. But let’s be honest, that’s nothing unusual: Aussies have always been obsessed with property; commentators and property buffs have always been at the ready with their forecasts and predictions (especially the negative ones!).
But how often do the property pessimists actually get it right?
In an atmosphere that’s charged with various opinions and forecasts, who actually knows what’s going on? Who should you believe?
Of course, there’s always plenty of noise from the media, and of late, it hasn’t been particularly positive: doom and gloom are easy to preach, and dominate the attention and emotions of readers and listeners alike. And to make matters worse, the media has the nasty habit of grabbing hold of speculations and presenting them as hard truth!
But if you’re prepared to stand back and look at the broader picture, and spend a few moments looking at what’s happened in the past, you might be in for a pleasant surprise. Property cycles aren’t dominated by one or even two factors: they’re influenced by many different elements, so it’s important to look at the big picture.
Will There Be a Huge Property Crash?
None of us are crystal gazers, we honestly believe that the hype about a massive property crash across the country has been blown out of proportion. Like nearly everything else, real estate follows a pretty regular cycle, so it’s worth taking a look back at what’s occurred over the past few decades.
While grim media headlines predict falls of up to 30% in the Australian property market, it’s interesting to note that over the past 30 years this has never happened, even though we’ve seen some pretty rough times – the recession in 1990, the global financial crisis and the credit tightening in 2017 – 2018. And according to Michael Yardney, a director of Metropole Property Investment Strategists, there’s ‘no credible reason to suggest a fall of this magnitude should happen now’.
Let’s take a look at some of the factors that influence property cycles:
Rising Interest Rates
Yes, interest rates do influence property cycles. And in Australia, they’ve jumped significantly this year, with six hikes in as many months. In fact, the last hike which occurred on the 1st November, 2022, came sooner than many anticipated.
Rising interest rates have an inevitable effect housing affordability, and for those who have borrowed heavily during the time when rates were historically low, it also brings up the question of sustainability.
Tightening interest rates may dampen buyer confidence, especially when it’s uncertain how many more interest rate hikes Australia will see. The RBA has left its options open:
“The size and timing of future interest rate increases will continue to be determined by the incoming data and the Board’s assessment of the outlook for inflation and the labour market.”
But despite being a controversial topic, interest rates are only one of the factors which influence what happens in the world of real estate.
Population Growth
The growth of the population has a lot to do with property markets. The maths is pretty simple – with a growing population, more houses are needed to support the increasing number of families.
The last few years have seen a stagnation in the population growth in Australia, but now that our borders are once again open to migrants, this should begin increasing again.
Housing Supply
The property market is game of supply vs demand: when the supply is lower than the demand, prices spiral upwards; when there are more properties available, sellers must often reduce their price to get the sale.
Shifts in consumer preferences during the pandemic resulted in a dire shortage of available houses, especially in the capital cities, which pushed prices very high very quickly. Now, with more homes available, the competition isn’t so fierce and we’re likely to see prices flatten, even fall somewhat. That’s only to be expected.
Renters & Investors
The rental market is an interesting one: vacancy rates are very low and demand is high. Investors, who are also critical in property cycles, are back in force.
More investors = more housing sales.
The Banking System
The health of a country’s banking system effects the availability of debt to buyers, and in Australia, the banking system is in a good place.
Despite the recent interest rate rises, the banking system is strong, robust and healthy. And while homeowners across the country have been ‘making hay’ with historically low interest rates, the banks have been preparing ahead of time, ensuring that borrowers could accommodate rises of up to 3%, ensuring they would be able to sustain their mortgages.
The Australian Economy
The state of the economy has a big impact on the property sector, and overall, the Australian economy is strong, growing by 3.6% in the June quarter 2022. Unemployment rates are low. Consumer confidence is high.
As we said before, what happens in the real estate market depends on many, many factors. And if you want to know more precisely what’s happening in Melbourne’s North, call our team at Love & Co today. With over three generations in the real estate game, we’ve seen good times and bad, and we understand what makes property cycles tick.
The information in this article is for information purposes only and should not be taken as financial, legal or personal advice.
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Sources:
https://www.urban.com.au/expert-insights/investing/113424-house-price-forecasts-are-usually-wrong-hotspotting-s-terry-ryder-2 https://whichrealestateagent.com.au/property-market-forecast-2023/#:~:text=2023%20is%20going%20to%20be,according%20to%20ANZ%20and%20Westpac.
https://www.realestate.com.au/news/nab-predicts-200k-plummet-in-melbournes-house-price-value-by-end-of-2023/
https://propertyupdate.com.au/australian-property-market-predictions/
https://www.news.com.au/finance/real-estate/buying/house-prices-to-plummet-by-as-much-as-223-per-cent-by-2023-nab/news-story/d7bd425ed61fc8c2924207167bbcfd7e