- We're currently in a buyer's market, but that doesn't mean Australian house prices are crashing.
- Wage growth has been far outpaced by property price growth.
- Other potential impacts include the baby boomer downsizing effect.
It may feel tougher than ever to nab a home in today’s property market, but yes, it is true that we are currently in a buyer’s market.
But, what a buyer’s market means is that the buyer will hold more negotiation power above the seller when it comes to buying a property because there is more supply on the market, less competition, and more choices for buyers.
What it doesn’t mean, however, is that homes on the Australian property market are more affordable.
Why is it still so hard to buy a property right now?
Just because Australian home buyer’s now have the home negotiating edge because it’s a property buyer’s market, that, unfortunately, does not translate into cheaper houses.
Not only that, houses are becoming increasingly unaffordable. This comes down to wage growth vs property price growth. When we compare the gap between house price growth and wage growth, it has never been wider, meaning that properties are becoming more unaffordable compared to our wages.
Wages have risen some 10% over the past three years, while house prices have leapt by about 24% across the same period.
The gap between house price growth and wage growth is widening, and this is expected to increase over 2024 unless Government makes some changes to tax and planning policies.
The Australian Bureau of Statistics (ABS) has shown that wage price growth has been rising steadily, at about 10% over the last 3 years (since the end of 2020).
However, house price growth has jumped about 24% over the same period.
You may think your pay packet growth may be adequate over time, but factoring in soaring house prices and a cost of living crisis, that wage growth seems to feel more like a wage cut, with that dream of homeownership for many buyers slipping further and further away.
For investors, we know that property is a long-term investment, which we can see by dwelling prices almost tripling over the past 20 years but when we look at wages over this same period, they have not even doubled.
Will Australian house prices ever drop?
The economists at the Grattan Institute believe that the extreme interest rate cuts during Covid are likely the culprit. The only way to bring the prices down would be to boost the supply of properties.
How do you bring Australian property prices down?
This can be done by changing the local planning laws in the more sought-after suburbs to allow more dwellings. The key is to build more houses in the areas where people want to live and work, and this can also assist in lowering the rental prices in those suburbs.
If some of those suburbs went from single dwelling zoning to medium density zoning, then we will see some real changes to the property landscape in the major cities like Sydney.
As inflation, unemployment, and interest rates fluctuate, this is when we also see a fluctuation in house prices, however, it hasn’t been a “cliff” or a “crash” so we aren’t expecting property to suddenly become a fire sale overnight.
When property prices decline, they come more in line with wage growth, meaning that the gap between wage growth and house price growth narrows, but the gap isn’t likely to be abolished altogether.
How are baby boomers affecting Australian real estate prices?
It has also been hypothesised that the soaring Australian home prices is due to the large numbers of baby boomers looking to downsize.
How does that impact property prices in Australia?
It causes upward pressure on the prices of downsizer-preferred properties; features include being close to amenities, coastal or country lifestyle, and low maintenance.
On top of that, the excess cash from selling their primary residence to fund their new downsized property is often going to their children struggling to buy a home which is “cashing up” the Gen Y property buyers and pushing up the cost of the typical family home, contributing to even further property price growth.
Considering this, it seems like we might be our own worst enemy!
How to make sure you aren’t paying too much for a house
- Avoid FOMO and getting emotional.
- Do your research, ensuring you look at similar sold properties in the area of a comparable size and quality. It should also be a recent sale.
- Reach out to a buyer’s agent.
With the current frenzy to try to buy a property in a preferred suburb before prices are predicted to rise again, some buyers are starting to get FOMO (Fear OF Missing Out) so are prepared to pay almost anything to secure a property in their desired location, risking over capitalising on the property by paying too much.
To ensure you don’t get caught up in the emotional turmoil that buying property is, you must understand the market and what the property is worth in that market.
One way to do this is to search for sold properties in the area that are of comparable size and comparable quality to see what they have been selling for and make sure it is a recent sale because the property landscape is changing on a daily basis.
Another way to avoid paying too much is to take the emotion out of buying property which can be done if you employ an experienced buyer’s agent to negotiate or bid at auction on your behalf. They will do all the research, due diligence, and comparable property analysis and be on your side to ensure the property is the right property for you and at the right price.
