Is History Repeating Itself?


JULY PROPERTY REPORT

It’s difficult to escape the uncertainty of the current economic climate after the Reserve Bank of Australia (RBA) announced its second exuberant cash rate rise in a month. The 0.50% increase continues to set the tone for a high interest rate environment. This is yet another disappointment for Aussies who are still adjusting to the record high inflation rate and low wage increase in the first half of 2022. The actions of the RBA are mostly due to offshore factors and experts say they can be expected to ease over time.


We could blame the slowing of the property industry on many factors; Covid-19, inflation and commodity prices, the Federal Election, winter perhaps, or maybe it’s only natural for the market to correct itself after a long period of growth. We have seen this cycle before, for example, in 2019 after the Royal Commission occurred, the global financial crisis in 2008, the dot com bubble in 2000, history repeats itself. With the perfect storm experienced last year across the country, including sky rocketing property prices and extremely low interest rates, is it only right for the market to correct itself to find an equilibrium? It’s true, house prices have fallen for the first time in almost 2 years but only very slightly. The supposed “correction” has resulted in people selling and buying for a fraction less, meaning less stamp duty which isn’t necessarily a bad thing. Provided that we do see deflation in the cost of living and a balanced market across the board, house prices may remain stagnant through winter and steady for the next 6 months.

A normal upturn period in the property cycle usually lasts several years and is generally followed by APRA introducing new controls or interest rate rises to dampen the enthusiasm of investors and home buyers. The most recent growth we have experienced has been at an unprecedented rate with property results performing stronger than ever before. In saying this, if we take a step back and consider the 2-3 years prior to the pandemic, many suburb prices remained stagnant for a few years meaning the average long-term growth since 2017 is approx. 5% per annum.


The question on everyone’s mind right now, “Is the property market going to crash?”. It takes households a while to consider their options to move again, even amidst a housing crisis. In general terms the shortest period we have seen owner occupiers stay in a property is 12 months. However, considering affordability options and current wage strength, it is anticipated that we won’t see much movement on these recently purchased properties for a period of 2 years. Most recent buying activity has taken into account market fluctuation with lending based on a higher rate. And with the cost of moving i.e. stamp duty, moving costs and other associated fees, home owners simply can’t afford to sell for less in the short term.


Tree changes remain appealing to many Victorians with lots of inner-city business models now supporting flexible working from home arrangements. The tree change trend is an influencing factor for the property price hike we have experienced since the pandemic begun. Inner-city buyers used to tend to favour the Yarra Valley or Mornington Peninsula for their city escape, however they are now thinking outside the box and considering rural locations such as the Kinglake Ranges, Goulburn Valley and regional shires. We have experienced this firsthand having worked with more metropolitan investors and city buyers than ever before


community and their needs and concerns, to educate our clients, and to continue adapting to this ever-changing environment. The market today is very different to the market 12 months ago, hence we are valuing properties competitively and accurately based on comparable data. Banks have become more stringent with their valuations and lending making finance clauses lengthy and unpredictable.


All in all, there is a lot happening in the market right now with many factors to consider. Before you get too overwhelmed, jump on the phone and give us a call any time. We hope you are all staying warm, cranking those wood heaters, and perhaps even enjoying the snow where you can. Stay warm, stay safe.


Regards,

William Verhagen – Integrity Real Estate