- Lloyd Edge explores some of the factors keeping supply low
- Buying incentives can drive both demand and prices up
- Competition may pick up if the RBA cuts rates next year
With many Australians worried about their household budgets due to the rising cost of living, alongside increasing interest rates, it is completely understandable to be confused about how property prices can possibly still be rising in this environment.
It’s really not intuitive to see property prices rising in these market conditions but it is official, with Sydney leading the charge with a median house price rise of 1.3% over the March 2023 quarter.
Nationally, auction clearance rates are increasing, showing there are many active buyers who are ready to buy in the market, keeping the competition high with stock levels still remaining limited.
Consider, even over the two pandemic years where there were predictions of a property market “bust”, Australian’s were really going mad for property over this period.
With successive interest rate rises, and the “Covid property boom” over, the growth rate of the property markets did initially slow down in the capital cities and turn around for buyers to finally have the upper hand.
But, it was certainly not the fast-downward slide as many economists had predicted.
The Australian property markets have proved their resilience, due to Government interventions, tightening of lending restrictions, and constant interest rate adjustments by the Reserve Bank. You really cannot look to market recoveries on a global level as a reflection on how the Australian market might perform.
Why are prices rising?
One of the biggest factors is supply.
There is a shortage of housing stock on the markets, with sellers holding off and waiting for prime conditions to list their property and on the building side, builders are really struggling to keep up with demand.
Some sellers have also opted to renovate rather than sell, which is also restricting the availability of stock on the market.
To put it simply, the property markets are really driven by the supply and demand matrix, so if one is restricted, prices will rise and fall.
It is best to then take a look at how supply and demand are impacted.
Supply is based on sellers’ sentiment to sell their property and the availability of new stock on the market from builders.
Demand is based on the buyers in the market, which is driven by Government incentives, interest rates impacting borrowing capacity, and the rate of inflation driving the cost of living pressures.
Could we be at the bottom of another boom?
No one has a crystal ball and can 100% accurately predict how the property market is going to perform. There are many contributing factors to property prices and many are contributed to the personal sentiment of buyers and sellers.
If sellers are feeling confident with the property market, they are more likely to list their property for sale and this will mean more stock on the market for buyers and prices should soften.
If interest rates hit their high and start declining, then buyers can afford to pay more for property and new buyers will feel confident to enter the market meaning that there is more competition to buy property which drives property prices up.
Government incentives, particularly for first home buyers, will also drive prices up. This is counter intuitive for the aim that these incentives are meant to be used for.
Any Government incentive that entices more buyers into the market, or assists with purchasing a property, will create more competition in the property markets which puts upward pressure on prices and makes property prices more unaffordable.
Whether we will see another “boom” soon or not, depends on the individual market conditions and drivers of each individual property market.
We typically expect prices to increase in the spring months as sellers and buyers come out of hibernation, and it will be very interesting to see whether there is lively activity this year given that most property buyers are having to tighten their belts on the family budgets.
We would expect more market competition as interest rates start to decline next year, so we are expecting a strong performance from the property markets, but another boom? This is something that only time will tell, so keep a keen eye on this space!
