Temperatures are climbing, blossom is in the air and Victoria’s real estate agents are gearing up for silly season – Spring has finally arrived! Acknowledged as the ‘hottest’ period of the real estate cycle, rampant buyer demand and outstanding results are the hallmarks of a Spring market. In today’s blog, Hatch Financial Services’ Director Tim Gaspar shares his thoughts on the Spring selling season – and offers insights into how today’s properties will fare in tomorrow’s market. Tim is joined by Gordon Whale – Senior Consultant and Auctioneer at Miles Real Estate – and Ying Chan – Associate at Property Duo.
In post-GFC Melbourne, the real estate market went through an 18-month period of speculation. Would the housing market experience a price correction? With houses deemed ‘overvalued’, many buyers chose to wait for demand to cool, hoping this would bring with it more affordable opportunities to acquire property. 8 years on, Melbourne property prices are up 83%. An old friend of mine – a real estate professional in fact – chose to opt out of the market around that time. To my knowledge, he hasn’t yet bought back in.
What can we learn from this?
In times of exponential real estate price growth – as has been experienced across Victoria in the last 5 years – many buyers choose to wait it out and strike when the iron is hot. These would-be property owners imagine they’ll buy when demand falls and the market crashes. They attempt to play the market, if you will. The issue with such an approach is that accurately predicting a housing market crash is incredibly difficult. You can’t ‘time’ the property market as you might the stock market. With external factors like population growth, first home buyer incentives and the global economy out of our control, it’s irrelevant how ‘ridiculous’ house prices may appear to one individual.
“A property is worth what the market is willing to pay for it,” says Gordon Whale, Senior Consultant and Auctioneer at Miles Real Estate in Ivanhoe. Gordon has noted a large number of family buyers and downsizers active in the market. “Pre-retirement downsizers have often experienced impressive capital growth on their existing family home, and so enter the downsizing market with a substantial budget – blowing first home buyers out of the water,” he says. “This is just one factor which shows how investors are not the sole issue in today’s cut-throat property environment.”
As we approach the end of 2017’s third quarter, we have experienced an impressive median property price growth of 12.7% over the past last 12 months. Influencing this number is the decline in stock availability – less properties means fewer auctions, which generally means high demand and fierce bidding. We saw APRA tighten investor lending and credit policies earlier in the year, which slowed demand for lower grade investment properties, and opened the market to owner-occupiers. “Investor activity has subsided”, says Ying Chan, Associate at Property Duo. “Properties suited to investors only 3 years ago were attracting 4-6 bidders per property. That has now dropped to 1-3 bidders.”
This gentle easing of demand is leading some to believe we’re on the road to a market crash. This slowing of growth is beneficial to the market as a whole, restoring a sense of calm and reducing the desperation to ‘get in’. The ongoing population growth, slowing of investment buying and growing employment opportunities will do its part in holding demand strong and stabilizing the market. “With more properties presenting themselves throughout Spring and Summer, continued low interest rates and new first home buyer stimulus, the market is sure to keep warm,” Gordon predicts. Resulting market stability will enable the RBA to gradually increase the cash rate, allowing other areas of the national economy to benefit.
For those predicting a market crash and holding off on their property purchase as a result, consider how far we’ve travelled since the GFC. There are no guarantees in any class of investment – but the slowing market is more indicative of stability than disaster. If we can steady demand for property and bring price growth back to a more conservative level, a market crash should not be of concern. “First home buyers are noticeably active in the market again – particularly for properties $650k and under,” says Ying, referring to the introduction of stamp duty exemptions for first home buyers. With these new first home buyer initiatives in place and APRA continuing to clamp down on investor credit, we move further away from the threat of cultivating a ‘property bubble’. Making owner-occupiers the priority, Australia can then begin to cement a property market displaying more moderate signs of growth.
Want to talk interest rates? Spring market trends? First home buyers? The ‘bank of Mum and Dad’? Downsizing? Reach out to the team at Hatch Financial Services today.