Given the amount of discussion about house price forecasts of late and the typical conjecture that eventuates, it feels like it is time, once again, to discuss the obvious—that there is a distinct residential property cycle in Australia.
Past cycles have averaged between 7 and 8 years in duration. They have largely been smooth affairs—only on rare occasions have they rapidly peaked and troughed.
But do I think that moving forward, our residential cycles will get shorter and that they will become more “lumpy”. Future lows might even drop below past furrows. There will very likely be less growth on an annual percentage basis, throughout an entire cycle, than in the past. But essentially, what drives a property cycle and how it behaves is unlikely to change.
Many things drive a property cycle—most of which are recurring—such as liquidity; economic growth; rising demand; investment returns; scarcity of supply and consumer confidence. But there is always a “factor x” which builds influence and is often the key ingredient/s that causes imbalance. At present, these x-factors include SMSF’s, Chinese buying; FIRB rules and the lower Australian dollar. You can see these in operation in Sydney, Melbourne and now, too, across parts of Brisbane.
The property clock is a simple but effective tool which outlines where certain locations and product types are positioned in the overall property cycle. There are four phases of the property cycle including a recovery; upturn; downturn and stagnation. The cycle also peaks and troughs.
At the moment the market in the majority of areas is moving through the recovery phase to an upturned market. The recovery phase is typically mildly favourable to sellers.
- Sellers should expect a quick sale; especially if the property is well priced
- First offers on paper are often the best
- Buyers need to make sure they don’t overpay, but they can miss out if they take too long
- Renovators need to understand the market’s limits. Over-capitalisation often happens in recovery market locations
- Renters should consider buying or locking into longer lease terms
An upturn market is a sellers market.
- Sellers should expect a quick sale, especially if the product is well priced, presented and marketed
- Buyers need to make sure they don’t overpay
- Second or subsequent buying offers can often be better than the first
- Buying decisions often need to be made quickly
- Renovators, again, need to understand the market’s limits. Over-capitalization is very common in upturn market locations
- Renters should be considering longer lease terms
Currently the market continues to be quite active up to $500,000 with listings generating a lot of enquiry and inspections. There continues to be an upward pressure on price levels.
Between $500,000 and $750,000 the market is not as strong and sales volumes are generally slower. Property priced above $750,000 is for the more discerning buyers who are still cautious in what they are prepared to pay for a property.
The current market is ideal for auctions and going to market without a price is generally exceeding vendors expectations of what they might achieve through marketing with a price.
As always, if you wish to discuss your property needs please contact our office.