house-time-bomb-fuse-feature
Will Australia’s housing market crash this year? It’s a ticking time bomb awaiting some crucial details. Image: CSIRO via Wikimedia Commons.
  • Inflation in Australia is likely to peak later this year, according to Mr Wargent
  • Demand to continue outstripping supply
  • Could present an opportunity to purchase at a discounted price

A downturn in Australia’s housing market is likely to be short-lived, according to BuyersBuyers’ Pete Wargent.

A rogues gallery of reasons that we’ve come to know and despair have hampered homebuyers’ hopes in recent history: rising interest rates, rising construction costs, the rising cost of living, the rising cost of housing, and more.

Has inflation peaked?

You’ve probably “read all about it”, or at least heard about what’s been pushing the price of everything up by now, and a brief recount includes Ukraine, supply chain challenges, and a rather persistent pandemic.

Mr Wargent said, however, that inflation expectations have peaked earlier than feared, and inflationary pressures are now apparently easing across many parts of the global economy.

It is for these reasons that Mr Wargent believes the Aussie housing downturn may likely be relatively short-lived. He added that a strong underlying demand for housing could be driven by several factors: a return to rapid immigration, and reduced average household size.

“The downturn in housing market sentiment has been largely driven by one major factor, being inflation, and the related fear of a sharp increase in mortgage rates. For as long as consumers fear rising mortgage rates, activity in the housing market will be reduced, with both the volume of buyers lower, and the duration of transactions longer.”

Pete Wargent, Co-founder BuyersBuyers

Mr Wargent noted though that inflation in Australia is yet to peak, that’s expected towards the end of this year.

“Australia’s inflation profile is tracking some way behind other parts of the world. With rising prices for electricity and rents still to flow through to the official figures, inflation isn’t likely to peak here until the end of 2022,” said Mr Wargent.

“But the important thing for consumers is gaining a level of comfort that inflationary pressures will eventually fall away, and therefore not being fearful of rising interest rates. Australia’s biggest bank already sees the RBA cutting interest rates in 2023. And in both historical and absolute terms, of course, interest rates are still relatively low.”

Investment among the gumtrees

The visage of property as a safe investment seems to have been proven time and again in many people’s eyes, said BuyersBuyers CEO Doron Peleg:

“With an average holding period that is greater than 10 years, and a chronic undersupply of family suitable properties in the major employment hubs, the ‘buy and
hold’ strategy has been proven to be a very effective one for both investors and owner-occupiers.”

Investor capacity and appetite for property may be mounting too, Mr Peleg noted households may have strong balance sheets thanks to a surge in savings through the pandemic. He also noted investors are shying away from the volatility and uncertainty in the financial markets, and many are turning to residential and industrial real estate as an inflation hedge.

“First homebuyers will be brought back into the market via Labor’s shared equity scheme, while first homebuyers in the price ranges up to $1.5 million in New South Wales will be eyeing up the opportunity to buy with zero stamp duty from January.”

“All of these factors are very solid for the housing market. The one factor which isn’t strong is market and borrower sentiment” Mr Peleg said.

But how long?

To quickly summarise, it seems demand will continue to outstrip supply many fold, and a few more bumps along the road can be expected as we progress through the year, from global factors.

As for downturns in Australia, Mr Wargent said:

“Historically downturns in Australian property have tended to last 18 months or less, and this time may be no different if inflation expectations decline over the next few months. A chronic undersupply of family-suitable properties – combined with a reducing number of dwellings in the pipeline and a growing need for more new housing – mean that aggregate demand for housing will simply be greater than the supply over the coming few years.”

“The current downturn provides an opportunity for investors to receive both strong rental returns and medium to long-term capital growth. Meanwhile upgraders have a rare opportunity to slash many thousands from their costs by upgrading now, while building their wealth for the medium and long term” Mr Wargent said.

BuyersBuyers said, in a release, that if there’s one simple lesson from the market downturns since 2008, including the large degree of uncertainty in relation to the housing market when the COVID outbreak started in the first half of 2020, it is that downturns provide an excellent opportunity for investors and home buyers to purchase high quality properties at a discounted price.

In particular, property upgraders simply need to tip in substantially less money in order to move up on the property ladder.

~~

Disclaimer: This article contains general information and should at no time be considered advice to the reader. The reader should always verify their situation with the relevant certified professionals before taking any further steps. 




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