As Australia cements its most successful quarterly gains in history, many are left asking the question of when the peak is in and if a sizeable correction may occur. It is illogical for any market to go up in a straight line, however the market can often stay irrational for longer than generally anticipated before the inevitable happens.
For many that are looking to sell, the data says that it is generally a good time. For those that in the market to buy, should one hold off or is there more room for growth on the horizon? What about those that are looking to renovate? The inner workings of markets is generally complex, and depend on many moving factors both domestically and abroad. For the sake of simplicity, the biggest factors dictating property prices in Australia can be split into 3 major factors:
- Interest rates: the ability to borrow and repay will affect the general demand for real-estate. As interest rates are at a record low, it is more affordable than ever to borrow. Rates are projected to remain relatively stable for the next few years, however there has already been a wave of tightening on lending criteria due to demand.
- The supply: the simple dynamics of supply and demand comes into play, and at this stage we are in a unique situation whereby movement restraints imposed have led to the increase in desire to own a freestanding dwelling. Despite the lack of travel and foreign investment, domestic demand has more than compensated in contributing to the increasing supply shortage.
- The sentiment: various external factors such as commodity exports and the deteriorating relationship with China can and will affect confidence and sentiment of the real estate market. This is hardest to predict as many factors govern and shift market sentiment.
Economists are torn with differing views on where to next. There are reasonings for a continuation of growth for the next few years as widespread travel resumes, meaning foreign investments will start to pour back into the market, compounding on the growth that has already occurred. The opposing view is that the property market is over-extended; with interest rates already at rock bottom, a strong increase in building approvals to boost supply, movement restrictions generally easing in the near future and wider negative market sentiment towards commodities and China, a sizeable correction is imminent.
The take-away is that context is most important. For the investors selling, there has statistically never been a better time to “scale out”. For the owner-occupied buyers, one needs to weigh up risks and proceed with caution. If you are transitioning from one property to another, this should be coordinated and completed within the shortest amount of time to mitigate risk. And for those that are considering renovations, it will depend on how urgent and the purposes of carrying out such projects at a time when demand and pricing for contractors are generally at its peak.