What Is Instore Next For Our Market
The property market is always subject to change, and the current economic position highlights opportunity. In the coming months, we will see a surge in building and construction, plus other key infrastructure projects. There will be a flow-on effect through the economy in both residential and commercial sectors. Rental demand is likely to remain high, and the flow on will be continual high demand, lowering vacancies, and pressure on rental rates. The key message is not to panic, if you have a well-managed investment that is returning income, try and hold. If you are in a position to purchase, take advantage of the low cash rates, and if you are a seller, maximise the lack of competition by testing the market.
The ABC has reported that the Reserve Bank considered asking for real estate transactions to ‘pause’ amid property crash fears due to the Covid 19 pandemic. It is reported that the Reserve Bank considered urging the Federal Government to shut down the real estate industry to avoid perceptions of a coronavirus inspired housing market crash. The catalyst behind this thinking was the decline in demand for homes, both new and established; falling incomes; and overall confidence. Beyond difficulties inspecting and selling houses, people were worried about job security. A broad approach to the market could have been very damaging. Locally we have seen consistent market activity throughout the past 3 months. The value and turnover is being influenced by the shortage of supply which has maintained a balancing effect in our local market.
What is in store for the next 6, 12 – 24 months is likely to be more predictable. The first thing is interest rates; while the unemployment rate remains above 5% then interest rates will remain at their current level. This is highlighted by the surge in existing homeowners taking advantage of circa 2% interest rates and fixing terms for 2-3 years. The impact of this is that there are generally much higher costs associated with breaking fixed term mortgages, therefore these homeowners are not likely to be sellers in the foreseeable future, restricting supply of saleable property.
The next factor to impact the marketplace is the removal of the job keeper, job seeker and the mortgage holidays from banks. This is due to culminate around September, and it is my opinion that this is when we will see a surge in investment stock hitting the market.
The areas where this will have the biggest impact includes those suburbs where investments are quite highly geared, which are generally housing estates that are 5 years or younger. I believe that around springtime we will see an influx of property becoming available for sale in these newer estates. Higher volume will create negative pressure on price.
The third factor to influence the housing market is the Home Builder Scheme. The initial announcement was one to instil confidence in those in the building sector. The biggest influence that it will have is that it will fast track work. When you drill down on the scheme it benefits those that were already going to build or renovate, given the time frames they need to work within. The fast-tracking of work will not necessarily create more work, it will just create higher volume in a shorter period. We saw this impact in 2000 and then again in 2009 when the first homeowner’s grant was introduced, and then increased. This resulted in surges of activity, but it then fell away sharply. The impact is short term as opposed to being a sustained demand. The positive aspect is that there will be an immediate surge of activity and work, it will not be long term and sustained.
The answer is that there is no perfect solution. For every positive, there will be a negative. Take for instance the Homebuilders’ scheme. This will create a surge in activity in the newer housing estates; titled land sales will increase, and builders will see a surge inactivity. This will place downward pressure on the value of existing homes, as buyers seek ‘new’ over ‘used’. In the new estates where we are likely to see an increase in the homes being offered for sale post-September, these homes now have to compete more aggressively on value with new builds. The upside to this is that more people will be drawn to these areas, thus creating higher demand for the area in general. Positivity remains the key, and consumer confidence is gradually rising; there will be continuing pressure on family finances, however, house prices have held. Our market is resilient, and these prices are being influenced by low turnover, exceptional finance rates and continuing demand particularly for our region.