What does the new property cycle mean for buyers and sellers?

It’s clear that Australian property is entering a new cycle. We asked some of our experts to weigh in on what this new cycle means for buyers and sellers right now. 

Pete Wargent (Co-Founder, BuyersBuyers)

Traditionally it is said that there are three phases of a real estate cycle: boom, slump, and recovery. Historically Australia’s cycles have run for around 8 years on average, although in reality things are rarely so clear-cut. We have found that different markets perform and underperform at different times. 

Following an initial downturn in the first half of 2020, most parts of the housing market – with the exception of some inner-city unit markets – have come roaring back over the past 18 months, with some markets recording price gains of up to 30%.

With the prospect of rising mortgage rates, there is less fear of missing out now, and with more listings coming on to the market, buyers can afford to be more considered and selective in their prospective purchases.

One thing that has become very evident over the past two years is the wide range of uncertainty surrounding forecasts.

Only a little over six months ago economists were calling for a lowering of the inflation target to 1 to 3 percent, yet now the headline rate of inflation is well above the top end of the range at above 5 percent. 

Similarly forecasts for very high unemployment have proven to be far too pessimistic, with the unemployment rate set to fall to below 4 percent, and job vacancies at all-time highs at more than 420,000.

Philip Webb (Director, Philip Webb Real Estate)

Interest rates have been so low for so long, it is probably not a great thing that people have become used to it. With any rate movement, it generally takes people a short time to adjust to normality – but they do. The latest rate announcement will be the headline for a few days then we will see a return to normal.

I believe the real estate market will continue to grow. It may steady down a little bit as people get used to the new rates, but it will continue to grow. I’ve been in real estate for over 50 years and it’s only relatively recently that we have had interest rates this low. It’s not going to be a huge impediment to people looking to buy their dream homes. 

Stu Costello (CEO, Harcourts SA)

I think this is a very tricky subject to predict and everyone should be diligent in seeing the difference between media hype and the actual facts. When looking at the historical dataset of interest rates vs property prices in Australia, there is very little correlation between the two. A comparison could somewhat be drawn on property prices rising when interest rates have a sudden and large drop, however, it is very difficult to see conclusive evidence that when interest rates rise and property prices fall.

The other aspect to consider is that within Australia, not all markets are the same: people need to look at what’s happening in their specific market whether that be at a state or city level, regional level, or even suburb level.

Nerida Conisbee (Chief Economist, Ray White)

A slower market has advantages for buyers and sellers.

While we tend to celebrate price growth, the reality is that a fast moving market  is stressful to most buyers and sellers. First home buyers don’t like transacting in fast moving markets. Most sellers are also subsequent buyers and hence when looking to upgrade, fast moving prices mean that sellers are under pressure to limit the time gap between selling and buying.

Slowing markets results in less new stock coming on the market

When markets enter a new cycle, there are typically less new listings coming to market as sellers are more cautious.  This lack of new stock on the market creates a challenge for buyers to find quality property.  A big challenge right now is a shortage of stock for sale. For these reasons, in a slow market, highly desirable properties are well sought after and will often defy expectations.

Will we see house prices increase or decrease?

Pete Wargent (Co-Founder, BuyersBuyers)

There are factors pulling in both directions now, with the economy firing back, and population growth ramping up. But borrowers are cautious about the prospect of mortgage rates rising sharply. 

Election campaigns tend to be slow periods for the housing market, but there should be a little more certainty in the second half of the year – some property investors will become active in the market seeking a hedge against the surge in inflation, with deposit rates for savers still stuck at miserably low levels. 

Brisbane and Adelaide still have some momentum, as do many regional markets around the country, with chronically tight rental markets in evidence. 

Stu Costello (CEO, Harcourts SA)

If the last 2.5 years of predictions have taught us anything, it’s that there are so many factors which can influence the property market and that it’s incredibly difficult to predict how people will respond to these external factors. Being diligent, paying attention to your specific market, and working alongside experts in your market are crucial to navigating the property market successfully.

Phillip Webb (Director, Philip Webb Real Estate)

We are still seeing an amazing shortage of stock throughout Melbourne. I am not expecting a huge variation in prices; it will still be a solid year. By the end of the year, the market would have taken rate rises in its stride and prices will be at an even keel – a good buyer’s and seller’s market. Banks are ultra conservative and jump  at shadows. In reality, mums and dads who have been saving and waiting want to get their dream home. 

I believe that given the interest rates and increases proposed, versus those over the last 50 years, it is still cheap and cost effective to buy your dream home. The media wants everyone to panic.We shouldn’t panic! Melbourne real estate is pretty steady, pretty strong and has done nothing but go up in value in time over the last 200 years. 

Avi Khan (Principal, Ray White Marsden)

House prices have increased by an eye-watering 30 percent since the start of the pandemic, however, they are already beginning to slow and given the rise in interest rates, the traditional economic rationale would suggest that house price growth will slow even more.  

We have gone through so many predictions and assumptions in the last two years, thus the question is, ‘will standard economic rationale apply once the rate rise comes through?’ For example, the predictions suggested a 30 percent drop, but we had the opposite occur over the last two years. Australians’ thirst for property, plus population growth in some areas will challenge the traditional slow down that interest rate rises create.

Nerida Conisbee (Chief Economist, Ray White)

There are more influences on price growth than just interest rates.

House prices are very sensitive to interest rates, particularly in areas where housing debt is high such as some suburbs within Sydney and Melbourne. However they are not the only influence and in some locations, other factors are a greater consideration.

These other factors include the underlying health of the economy, prospects for population growth, urban regeneration and infrastructure improvements, access to finance (ease of lending), increasing wealth, Government policy towards property, and the level of household debt.

Presently, all these other factors are providing tailwinds for the property market. Employment is very strong and wages are rising, population growth is expected with the return of open borders, and infrastructure spending is at record levels. Household debt (net of deposits) as a percentage of household income has declined over the past two decades, falling from around 100 per cent in the mid 2000s to around 70 per cent currently.

Looking to buy or sell? 

If you’re thinking of buying or selling this year, it pays to browse homes similar to what you’re interested in. You can also calculate potential repayments using our Well Home Loans integration to account for potential rate rises and give you a better idea of where you stand and how close you are to finding your dream home.

Thanks to our guest contributors:

Nerida Conisbee – Ray White

Philip Webb – Philip Webb Real Estate

Avi Khan – Ray White Marsden

Pete Wargent – BuyersBuyers

Stu Costello – Harcourts SA