What would put a halt on the current property price BOOM?
Total listings are up on last year and new listing numbers have also increased. CoreLogic suggested in the 3 months leading up to May across Australia 164,000 dwellings were recorded as sold yet at the same time only 136,000 new listings were added to the pool of properties to purchase. The panic buying fuelled by the FOMO (fear of missing out) seems to have subsided however buyers still find it a challenge to find good, affordable properties to buy. At the same time, sellers have expectations that the market will continue to rise and therefore may be holding off selling in the hope to achieve a little more at a later date. What we are seeing is older properties, that have been sitting for sale longer than the average time on the market, approximately 33 days in our local area, are now being bought up creating a new shortage in available properties to purchase.
The next few months are unlikely to match what we experienced in the first few months of 2021. The outlook remains positive however we’ve already seen a slowing pace of growth to 1.8% in May from the peak of 2.8% in March. The pandemic levels of buyer activity may have come to a close. However, with fewer options available to those who are serious about entering the property market may need to accept the new price expectations and values of properties locally and across Australia.
What is likely to put a halt to growth? Firstly, a COVID outbreak and more intense lockdowns would hurt the market however it seems less likely. Currently, the Australian GDP continues to strengthen, and although slow, is up 1.8% quarter on quarter and likely to continue to improve as household spending continues to gain confidence with a recent rise of 1.2%. Household savings sit at a record high of 11.6% and bank deposits over 200 billion dollars. Although spending might be up, inflationary pressures will also raise the cost of goods, putting restrictions on where people can spend their money. This will likely have an impact on the growth of prices. Banks have already started to pass on their costs with a rise in lending interest rates. An increase in lending rates and tougher lending conditions seems plausible and will certainly assist to slow the current boom.
The possible third cause for a market slow-down would be housing affordability, as it becomes more and more out of reach. This would knock out many first home buyers, likely encourage owner-occupiers to stay put with a focus on upgrading their current residences and have investors jumping in on desperate sellers trying to capture a good deal. Finally, with new dwelling approvals up and international immigrations likely to lag, we could see an oversupply. And when supply catches demand we will certainly see a balancing market.