Buyer’s markets are very rare and are the best times for buyers to consider getting ahead! We have experienced a period of uncertainty this year with a series of local and global influences. The property market has reacted. However, perspective is important because last year’s record market was an outlier. Now we find ourselves in a time where the market has given back a fraction of its gain and presents fantastic buying opportunities for savvy buyers who have a long-term outlook.
It is not just our experience in the market that tells us that now is an opportune time to buy. Take a look at these facts for yourself:
1. Historical peak-trough trends
The average length of an upswing in the Australian property market is 2.75 years (11 consecutive quarters of growth) whereas the average length of a downturn spans just 0.75 years (3 consecutive quarters of decline) according to recent research conducted by Domain. This means that on average, downturns are only a fraction of the preceding upswing, and the subsequent gains surpass the previous downturn.
National property prices peaked in March 2022. Applying the theory of the average length of a downturn suggests a cycle shift as early as November 2022, however unlikely this may seem now.
Turning to Sydney, property prices reached their peak rate of growth as far back as 18 months ago in March 2021 according to Dr Nicola Powell of Domain. This means that demand peaked sooner than other capital cities and suggests that Sydney is further along the price cycle compared to other cities.
History reveals that if buyers have a long-term horizon, they are better placed to ride potential future downturns and if they select the right asset, they will experience significant gains. We cannot predict exactly when the bottom of the market is, and it is a risky business to even try as buyers can easily be left behind when the market takes off again.
I have been a Buyer’s Agent for 12 years and in all that time, there have only been 2 other noticeable periods that could be categorised as Buyer’s Markets – One was during the GFC and the other was around the time of the Royal Commission into Banking which started in 2017.
2. Return of overseas migration
With borders reopened, the ABS has reported an increase in long-term arrivals since late 2021. There are also more people arriving for the long-term or permanently compared to those leaving the country according to Deloitte.
Translating this to the demand for housing, recent REA data for online searches for rental accommodation has dramatically increased. The search volumes for rental properties from foreign residents increased by 71% in June 2022 compared to the same time last year. CoreLogic similarly reports the rising volume of overseas migration is likely to have a significant impact on occupancy rates and increasing rental prices.
With the data pointing towards an evident increase in overseas migration and an increasing interest in Australia as a place to live for overseas workers, demand for housing is set to increase. This trend has several potential impacts on the property market including increasing rents and higher occupancy rates. An attraction for property investors is the potential to achieve a high rental return and maximum occupancy. Solid rental returns and stable tenants could bolster property investor confidence and increase demand for property amongst investors.
3. Supply constraints
Australia may be heading towards a housing shortage according to recent data released by the ABS. The report shows a decline of total dwellings approved for construction across the country which fell by 17.2% in July 2022. NSW recorded the second largest drop in house approvals with a decline of 6.3% in the month and a drop of 16.2% for units. This trend has been heading downwards since March 2021 for both houses and units.
Although there is currently a slight increase in the number of approvals to build houses, the industry body, HIA believes this is reflective of a backlog rather than current levels of demand. The backlog is said to be caused by global supply constraints for materials, the rising cost of materials and the shortage of labour.
The HIA suggests that the backlog of approved work will provide a buffer for a short period of time, however, the reduced levels of supply will catch up, causing a shortage in housing. The dampening of demand and the lack of appetite for new construction and development is said to be caused in part by the rising cost of living and rising interest rates.
With an increasing population leading to stronger demand for housing, constrained supply levels are likely to cause greater competition and demand for established properties thereby creating upward pressure on property prices.
4. Transacting in the same market
In 2021 sellers demanded and achieved phenomenal prices for their properties. One of the downsides to this was that if the seller was trading up, they too had to pay record prices to secure their next property. These sellers, turned buyers, had to join the race immediately to secure another property before prices outpaced affordability.
In this current market, buyers have more opportunity, especially upgraders. Homeowners who are considering upgrading their property can use these market conditions to their advantage. Upgrading in this market allows buyers to purchase a better property at a discount that is financially larger compared to the discount applied when selling their initial property. For example, say the market has reduced by 10% in the suburb where you are looking. A 10% discount on the property you buy for $2,000,000 is larger than the discount you give away if you sell your first property for $1,000,000.
Property owners who are considering upgrading should consider what it would mean to secure a better property at a reduced price in a subdued market versus trying to upgrade in a hot market and paying proportionately more for a better property or at worst, paying more for the same or lesser property.
5. Impact of interest rates
The major banks are predicting that the cash rate could be cut as early as the end of 2023 with a flow on effect to the interest rates for home loans. How could this affect the property market?
The downturn of the housing market Australia is currently experiencing is largely influenced by rising interest rates. If interest rates are cut, experts suggest this could increase demand for property and boost the property market. Head of research at CoreLogic, Tim Lawless suggests that we could be in for a growth phase as early as Q4 next year.
There are more good signs as RBA Governor Phillip Lowe commented that inflation is expected to peak later this year, also noting growing employment and increasing wages.
So if you are keen to buy ahead of the rest of the pack and take advantage of this buyer’s market, call us today on 02 9568 6330 or email us at nick@buyersdomain.com.au.
