The future of the Australian property market
The Australian property market has experienced a roller coaster ride in recent years. However, unlike most roller coasters, property prices have only gone up – particularly in Sydney. In fact, Australia's biggest city has seen property value increases of almost 10 per cent year on year and now boasts a median dwelling value of over $1 million, according to CoreLogic RP Data.
Other capital cities have generally followed suit, enjoying similarly skyrocketing prices – a dream for investors and the bane of first-home buyers.
Considering the current state of the market, you may be wondering what's in the future? Will prices continue to increase, will demand continue to outstrip supply, or are things about to change? Having a closer look at trends in the market will help to get a clearer picture of the future, which will be extremely useful to inform your upcoming home buying and investment decisions.
Price decreases forecast
From June 2012 to June 2015, Sydney and Melbourne experienced incredible median house price increases of 56 per cent and 33 per cent respectively, according to a QBE report. Understandably, investor activity has been high, with several such buyers enjoying huge capital gains after purchasing and selling property quickly.
The same QBE reports suggests that the coming years may spell the demise of such investor practice, and the beginnings of a more affordable property market in Australia. In fact, it forecast that during 2017 and 2018, every capital city except Brisbane, Hobart and Canberra will experience a decrease in average median house price.
Perhaps most shocking is the fact that Sydney is expected to drop by up to 5 per cent during the same period. This is a promising sign for those looking to purchase property in the future, as it may be about to become more accessible.
During April 2015, new building approvals peaked at almost 10,000.
According to the summer edition of the Commonwealth Bank Property Insights report , Australia has experienced unprecedented levels of development, particularly in main centres. In fact, during April 2015, new building approvals peaked at almost 10,000. Although approvals are now decreasing, levels of construction have remained high, and should stay that way throughout 2017.
This has led to massive increases in property supply – particularly that of apartments and high density dwellings. What might this mean for you?
The aforementioned QBE report suggests that it will help to decrease the price of units. In fact, every capital city except for Brisbane is forecast to experience drops in unit prices of between 6.2 and 1.2 per cent. Once again, Sydney is expected to experience the biggest price drop, at 6.2 per cent, meaning that by the end of 2018, the city's median unit price will be less than $700,000 for the first time since 2014.
Interest rates could drop even further
As of August 3, the Reserve Bank cut the OCR by 25 basis points to an all-time low of of 1.5 per cent. This cut was purposed to aid sustainable growth in the economy and regulate inflation, yet some have voiced concerns about the effect that lower interest rates will have on an already volatile property market.
As reported by the Sydney Morning Herald, one of the world's leading credit strategists, Alberto Gallo, has suggested that interest rates could decrease even further in future:
"There is going to be a very long environment of low, near-zero or negative rates, and clearly Australia is converging to that environment," he said.
So, how will record-low interest rates and the possibility of future cuts affect those buying property in future? If the cash rate continues to decrease, banks should eventually pass on a portion of the savings to their customers, meaning that your repayments might be smaller and you'll pay less interest. This should make it easier for Australians to pay off their home loans quicker.
On the flip-side, it may make it more difficult for buyers to secure a loan, as banks tighten restrictions due to decreased profit from interest payments.
The prospects are promising for Australians looking to buy property in the future. Decreasing prices will mean homes are more affordable, allaying fears that the market would never slow down and property would forever be excessively expensive. At forecasted rates of decrease, even Sydney may be affordable for first-home buyers in time.
Additionally, the number of units and apartments is increasing markedly thanks to record rates of approval and construction. There will eventually be more property to choose from at a lower price.
Combine these two trends with the fact that borrowing to buy may be about to become affordable, and property might begin to look like an attractive and obtainable investment again.
If you're thinking about taking advantage of these trends and buying a home, the experience of a Cohen Handler buyer's agent will help ensure that your investment enriches your life (and your bank account) for years to come.