People say that time in the market is more important, and that’s true, but if you could buy right before a property boom, wouldn’t you want to? How do you know when the market is about to start growing?
When we look back historically on previous booms, there are recurring factors that seem to play a role. Whenever there is a boom, you can see these factors in the market. And the promising news is that many of these factors can be seen in the current market.
The first of these factors is a housing shortage. Now, this is nothing new. Australia’s population growth has outpaced construction since 2005. But this shortage has grown more severe since 2019, where COVID lockdowns delayed the construction of new dwellings.
But what is it that drives Australia’s population growth?
Overseas migration is a major driver right now. We’re currently experiencing around 350,000 net arrivals per month, which matches the highest level of migration this country has ever received.
This higher level of migration creates more demand for housing, which makes the effects of a housing shortage even more pronounced.
Another factor which affects housing demand is inflation. Inflation and house prices are inversely correlated: when inflation goes down, house prices go up. And the opposite is also true. One of the strongest indicators of a pending price drop is increasing inflation. We’ve definitely seen that this year, but the recent pauses and data around inflation are indicating a slowdown.
To quote the RBA directly: “Increases in interest rates reduce the current value of future income and tighten borrowing conditions, and so higher interest rates reduce the value of property, just as they do for other assets that have future income streams.”
Outside of macroeconomic conditions, house prices are affected by demand. Liveable cities are more desirable and that desire drives demand, which in turn pushes house prices higher.
Australian capital cities have reclaimed their rightful positions at the top of The Economist’s list of Most Liveable Cities in the World.
Melbourne is ranked at Number 3 while Sydney has taken the fourth spot. Many other Australian cities have also taken Top 20 positions on the list.
Having a reputation as a desirable place to live makes a city more prestigious, which creates more demand, and demand equals higher prices.
But levels of supply and demand fluctuate, and in the property market these fluctuations are cyclical.
The Property Clock.
The “Property Clock” is a common way of representing the cyclical nature of real estate markets. Periods of growth are followed by decline which are followed by renewed growth.
Recent performance shows that markets are reaching the end of the downward phase. House prices have increased back to back for several months in a row, meaning that the markets are moving back into the upward phase. The Big 4 banks have also adjusted their forecasts for future growth.
This transition phase where prices are low but are about to start rising again is generally the best time to enter into the market.
The relationship between house prices, market conditions, economic stability, and government policies is interwoven and complex. But by looking at factors such as migration, housing supply, inflation, and demand, property experts can make an educated guess about when we’re about to enter our next property boom.
We have several development sites which we have just purchased in suburbs that are right on cusp of entering a new growth phase. To learn about these projects and how you can become involved with them, visit the Latest Offer page.