With an understanding of how the property cycle works you’ll be better positioned to pick your moment to buy or sell.
While Australian property prices typically track upwards in the long run – on average Australian home prices double in value every eight to 12 years – every property market runs in cycles.
Through understanding exactly what influences the ebb and flow of property prices, not only can you help secure a family home that will deliver good capital growth, you may also tap into market opportunities other buyers may not be aware of.
Supply Property prices are influenced by the very simple concept of supply and demand – just like fruit and vegetables. The stronger the demand, the greater the propensity for a rise in prices and vice versa.
Supply is a simple concept, influenced by the availability of land and housing in the area and the current level of construction activity. Tight supply can push prices higher while oversupply can lead to a slump.
Demand Demand is driven by a range of economic factors. Interest rates are perhaps one of the biggest influences on housing market activity and consequently on house prices.
When interest rates are lower, for example, buyers are more likely to purchase property as the cost of borrowing is lower – driving stronger demand and possibly pushing up house prices. In contrast higher interest rates can take the heat out of the property market substantially.
The health of the overall economy also has a major influence on property prices. A strong economy where consumers are confident, have strong incomes and access to credit, can all foster strong property market activity.
Unemployment is also a very good indicator of the state of the property cycle. Rising unemployment usually has a dampening effect on the market as consumers become cautious against taking on debt in case of job losses.
However a declining unemployment rate can be a good indication that the property cycle could be heading for an upswing. Consumers become more confident about their job security and demand therefore starts to improve.
Pick your timing There is no easy way to put a timeframe on the property cycle; it is just a matter of monitoring the economic environment and market conditions as they fluctuate.
While certain fundamentals, such as those mentioned above, can influence the property cycle, there are also exceptions that can shift supply or demand. These can include one-off government incentives such as the boost to the first home owner grant, incentives for builders and investors, or the overall availability of credit.
But by having a general understanding of the major forces, plus keeping a regular eye on news reports, you will be in a strong position to make the most of the fruits the property market can offer. Give us a call if you’d like to chat through current local property market conditions and your borrowing options.
AT A GLANCE – PHASES OF THE PROPERTY CYCLE • Upturn – Astute investors start to recognise and act on opportunities in the market.
• Boom – More buyers rush to market to take advantage of prime conditions pushing prices upwards.
• Downturn – Oversupply of new properties to meet demand or rising interest rates eventually put a halt on activity and stop price growth. The bigger the boom, the greater the likelihood of negative price growth during the downturn.
• Stabilisation – A period of time between the downturn and the beginning of the next upturn.