Green shoots in the Australian property market

With some green shoots starting to emerge in Australia’s property market, now could be a good time for some investors to act.  

There are always two sides to every story, and although the current state of the market may represent a threat to some, to others it can be an advantage.  

With the Federal election behind us, the Banking Royal Commission wrapped up and two quick interest rate cuts later, prices are stabilising as we reach the bottom of the property cycle as national dwelling figures have steadied their decline.  

Buyers are returning and the market is experiencing greater activity in over 18 months, particularly in premium locations. Experts are now suggesting that Australia’s property market will see some modest growth throughout 2020.  

Current state of play

Sydney and Melbourne led the market downturn with falls of 11 and 6 per cent respectively from 2017.  

Figures released in September 2019 by CoreLogic saw property prices finally turn the corner into positive territory, with quarterly increases to both markets just shy of 2 per cent. Both locations also experienced an increase in property demand from buyers and renters in a month that was described, as a “surge” by CoreLogic’s research director, Tim Lawless.  

Brisbane is also faring reasonably well, based on market activity and a very modest rise of 0.2 per cent in dwelling values—though the River city didn’t experience the same drops as our two largest cities. But while Australia’s largest cities showed promising signs of recovery, other markets are still yet to respond in the same way.  

Hobart has enjoyed a property boom in recent years, but with little movement over the last 12 months it faces the problem of being seen as expensive. However, still with more housing needed. Similarly, in Adelaide, sellers are not seeing a lot of demand currently. Likewise, most regional areas are lagging with falls in average value of 0.1 per cent. 

New confidence should slowly seep into the Perth market after a long five years. Darwin is a story unto itself.  

Prices plunged 25 per cent from their peak and now, particularly around the northern suburbs, are seeing greater demand. Although both cities are yet to see a positive change to pricing data, figures suggest an easing in their rate of decline. 

Buyer demand and confidence

There are many factors which influence the property cycle and its consequent recovery and many are still at play. Record low interest rates, increased consumer confidence, bank lending and strong population growth have all contributed to the turn, despite the economy languishing. 

Tim Lawless has suggested that “It’s likely that buyer demand and confidence is responding to the positive effect of a stable federal government, as well as lower interest rates, tax cuts and a subtle easing in credit policy.”  

Although there are some very positive signs starting to emerge and most analysts agree that we’ve reached the bottom of the property cycle, CoreLogic’s Tim Lawless cautions those in the market to adopt a circumspective approach. 

In particular Mr Lawless points to soft wages growth and the consequent affordability constraints. “Particularly if we do start to see lenders becoming more focused on factors such as minimising exposure to high debt-to-income ratios, you’d have to expect that would impact on the expensive markets, like Sydney and Melbourne, more so than the more affordable markets.” 

The property market winners

A soft market over the previous years doesn’t mean that everyone loses—and this in itself can help a recovery.  

Renters and first home buyers are enjoying those record low interest rates, stable rental inflation and reduced competition for houses. Along with discounted prices and an overall lower median price, means that they have the best chance in years of getting on to the property ladder. Savvy upsizers may also be able to buy well if they are able to offset losses of a sale against negotiated discounts received on a new purchase. 

However, there is not a huge depth of stock at the momentAs long as household debt does not drag down the economy further, sellers who have been waiting on the sidelines, may come onto the market and the stock and consequent buyer activity should continue to increase.  

Mr Lawless said, “While the ‘recovery trend is still early, it does appear that growth trends are gathering some pace, particularly in the largest capital cities.” So, if you’re thinking of entering the property market, it could now be time to act. 

For more on the property market, learn why the historically low cash rate is actually positive for commercial property investors or check out how investors are seeking a return from the Australian property market with the help of mortgage trusts

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