Is The Market About To Tank?

January 10, 2019
January 10, 2019 Luke

Is The Market About To Tank?

Broker giving a presentation to a young couple in her office leaning over the desk to explain paperwork to them

A lot of people are giving property advice and predictions at the moment as so many people ask, is the market about to tank? These predictions primarily use the current property prices and the number of homes passed in at auction as evidence of trouble brewing. The truth is that sale trends can be predicted for local areas based on past results and future expectations on a number of critical factors.

The critical factors that effect housing prices are not measured by the auctions clearance rates each weekend.  Determining property trends is more complex with factors that are well out of the hands of most Australians.

While low auction clearance numbers and reduced prices can get both buyers and vendors spooked, this alone is not the best way to gauge the future market stability, and definitely not an accurate way to choose whether it’s the right time for you to buy or sell. Rather than listening to media hype about the bottom falling out of the Australian property market, it’s important that you take the time to do the research and gather the right information and figures.

The main factors that contribute to housing prices are:

  • Population grown
  • Infrastructure
  • Economy
  • Interest rates
  • and government tax decisions

It’s these factors you need to take into account when determining how safe the future property market might be. Some of these factors are national and some are local to your buying area. Overall you need to buy or sell at the time that works best for you. Property decisions need to be genuine, based on your current needs, financial ability and future plans.

Looking at the critical factors that influence housing prices, the situation looks really good, especially for capital cities on the eastern seaboard.

A growing population

Population growth is already strong with an increase of 1.86 million people in Australia in the past five years, and no signs of stopping any time soon. The Australian Bureau of Statistics is predicting that by 2061 the Australian national population will be somewhere between 36 and 48 million. Much of this is due to the continuation of migration to Australia from other countries. Melbourne alone saw an increase in 2017 of roughly 2,800 people per week.

Most of the future residents are expected to concentrate in Victoria, with Melbourne looking to become Australia’s biggest city, but a considerable increase is also expected in New South Wales and Queensland.

Capital cities are expected to be the biggest winners, property wise, as historically migrants choose city living over rural with 83 per cent of residents born overseas living in cities due to better job prospects or close proximity to friends or family who have already settled.

Communities supported by infrastructure

What matters is that the right infrastructure is in place to cater for this growing population. If the housing and planned infrastructure does not increase to meet demand then we see a dramatic rise in property prices, like those seen in Sydney in recent years. These hot market prices were mostly due to a large increase in population in the Sydney area in 2006 without a great increase in construction of new homes, putting pressure on the existing market. Housing availability now is closer to meeting the residential numbers with 211,000 homes built March 2017 to March 2018 compared to only 187,000 March 2013 to March 2014. So while there is a drop in prices compared to three years ago, medium house prices are still high across the board.

The Australian government has been generous in the current Federal Budget allocating around $75 billion to enhancing public infrastructure. Australian cities and rural areas already have high standards for facilities including roads, parklands, schools, internet, community leisure and arts precincts as well as medical facilities. The high standard entices those looking to move from overseas to gain quality work and a rewarding lifestyle for themselves and their families.

A forward moving economy

The economy looks solid, with a slight increase also expected. The International Monetary Fund (IMF) predicts a steady economic growth for Australian of 3% over the next five years. While it’s a conservative amount it is a realistic and positive one.  When the economy is strong people feel more confident about loans and repayments with job security and private and government spending high, more jobs are created and infrastructure is maintained and increased.

Australian interest rates

There hasn’t been an increase in mortgage interest rates for some time, prompting some to believe that a hike is just around the corner. While outlooks are hard to predict the general consensus from the International Monetary Fund (IMF) is a mortgage lending rate rise of around two per cent over the next five years, low enough to ensure families are able to cover payments. So saying, it is important that loans and repayments are seriously and carefully considered with a margin for error allowed when creating repayment budgets.

Fiscal policies

Currently the Australian government has awards in place to support buyers, with exemptions on capital gains and land tax and generous tax benefits on investment properties. As well as this they have recently been increased taxes for foreign buyers to give Australians more opportunities to get in the market. While these policies and others surrounding it can change, it will be geared in the best interest of the market and the Australian people to help support a strong economy.

Why auction results are not a good determining factor for market trends

With some local property markets cooling, top bids at auction are not meeting the owner’s expectations for prices. Even if the real estate agent is happy with the result and suggests the vendor to sell, it’s up to the vendor to make the final decision.

The number of properties passed in at auction is simply a matter of not enough interest or too few buyers, it’s also an indication of how many owners are holding out for a better deal. Currently we are seeing a higher than normal number of properties being passed at auction due to home owners wanting to secure a higher price, which is not always feasible, especially if they purchased in a hot market and sell in a cooler one.

To get a feel for genuine interest in properties going to auction in your area make sure you attend auctions and take note of the number of bidders and how competitive they are. Competitive bidding between a number of interested buyers is a good indication of demand in the area.

Another indicator to look for is the DOM (days on market) in your area. Days on market measures the amount of days from when the property was listed to when it sold. High buyer demand translates to shorter DOM and low buyer demand translates to longer DOM. The fascinating statistic in this current market is that DOM are low relative to the auction clearance rates meaning properties are still selling. You will be surprised to know a lot of properties which are passing in at auction end up selling in 24 hrs to a week after being passed in.

Like in any market it is imperative you do your own research before making a decision and don’t take too much notice of the media circus.  If you would like some independent selling or buying advice feel free to give us a call 1300 887 861 or make an appointment by clicking on the link.

Realistically, if you buy a home now and sell it again shortly after, you will are likely to lose money (especially when you factor in the selling costs). A property is an investment that you need to commit to for the long term. It’s important to research the infrastructure in the area you plan to buy and buy with in your means. If you control your finances well and make a choice to buy based on what you can achieve for the long term you are likely to make a solid investment that will pay off in the future.

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