Government support packages have swiftly come and gone. Jobkeeper is now a thing of the past as mortgage deferrals are unwinding. House prices are rising at its fastest rate since 1980’s. What does the future hold and what factors could make the Australian property prices boom or bust?
Inflation, Friend or Foe?
As the market continues to execute a strong V-shaped recovery, the stimulus and money printing has been increasing in pace exponentially. Official inflation figures have been kept at bay so far, but that cannot continue forever, considering more than 1/5 of the USD in circulation has been printed in the most recent year with more to come. As confidence in fiat dwindle, it is natural for capital to flow into assets like property, which at first glance, seems to be in alignment with the latest boom in real estate.
The equation however is never single-sided. As inflation rises, so do interest rates and therefore more expensive to borrow money. There has already been signs of an imminent increase in interest rates on the horizon, and this could spell trouble for the property market as many are taking advantage of the lowest ever interest rates on offer and could be over-extended financially should interest rates rise.
Owner Occupiers Go Ballistic, Whilst Investors Stay Quiet
There is a stark difference between the last property boom and the current one that we are experiencing; the current boom cycle is largely driven by owner occupiers as, in comparison, investors have had a difficult time due to the prominent travel restrictions and recently introduced regulatory hurdles.
As house prices increase at an astronomical pace, the average house deposit required is now pushing upwards of $100k. The market can take comfort in knowing that the inflation in prices are driven by local demand, and not foreign investments, however one does wonder whether these house prices are sustainable in the long term. As travel restrictions slowly ease, will we see foreign investors pick-up where they left off in previous years and give the already over-heated market another leg up?
Up, Down or Sideways
As analysts always predicts, the market can go up, down or sideways. Jokes aside, a lot of momentum has built up in the Australian real-estate market in the last 6 months. With government stimulus in its final phases of winding down, we have yet to see any noticeable impact reflected in the property market. Moreover, will the influx of buying pressure returning from foreign investors offset the slowdown in owner occupier buying pressure in the months to come? How will the impending interest rise impact the market as a whole?
One thing is for sure, one cannot capitalise on market movements unless necessary preparations are done beforehand. Looking to renovate in order to sell or increase valuation?
Get in early and plan ahead.