Rising interest rates and uncertainty are causing the property market to cool across Australia. Looking at CoreLogic data, the Sydney and Melbourne markets are leading the way with declines of -2.7 per cent and -0.9 per cent.
According to the Australian Bureau of Statistics (ABS), the average property price is $1.2 million in Sydney and $966,500 in Melbourne, which represents discounts of $32,999 and $8699 on the average property today.
With inflation at a 21-year high of 6.1 percent and interest rates at 1.85 percent and tipped to continue rising, it looks set to put more pressure on property prices in the short term.
But maybe this is a good thing. Looking at the huge amount of real estate going on in the past couple of years, many people feel that they have been priced out of market or that the property has gone into overdrive.
Is now a good time to jump in as prices are falling?
Property market conditions
In the year By 2020-21, we have seen all property prices in Australia increase by 23.7 per cent, the strongest growth since 2003. In contrast to the weak property market we are seeing today, the average house price has increased over the same period last year. $107,000 in Sydney and $41,000 in Melbourne in three months.
In the year In 2022, we are looking at a slowdown due to rising interest rates and uncertainty about how the Australian economy will avoid current inflation. The Reserve Bank of Australia (RBA) initially forecast a 15 per cent decline in the property market by the end of 2023, with a further fall in 2024.
It’s important to note that not all areas of this fall are (or could be) equal. We are seeing asset prices increase in areas with strong demand and limited supply and weak prices in areas that do not have the same fundamentals. This trend is likely to continue during this property market disruption.
A key driver of soft asset prices is rising interest rates, which have increased by 1.75 percent over the past four months. The RBA is grappling with current global inflation, forecast to rise until 2022, resulting in further pressure on borrowers and property markets.
Advantages of buying property now
With the property market softening and the number of buyers in the market dwindling, people buying property today are doing so at a steep discount to prices we’ve seen recently.
There is a lot of fear and uncertainty. In my experience helping people invest in up and down markets, I understand that this uncertainty creates opportunity.
During the Great Depression there was a lot of talk about a major property market downturn, and many people were too scared to buy property. Many people were sitting on the sidelines waiting for the uncertainty to pass, believing that there would be a major crash that would allow them to negotiate more.
But before we know it, the ‘crisis’ is over and the uncertainty is gone. The property market didn’t crash as expected, and many people missed the boat.
In my view, the current conditions are suitable for property buyers to choose a bargain.
Disadvantages of buying property now
That said, buying property today comes with risks. The main thing any property buyer needs to manage in the short term is the possibility that interest rates will rise further.
For property buyers today, rising interest rates mean you’re more likely to pay more on your mortgage in six months than you are today. As mentioned above, rates are set to rise by about 2 percent from current levels in the short term – meaning you should be prepared and prepared to support higher mortgage payments.
There is also a possibility of property prices falling further in the short term. Buying and selling property is an expensive exercise, so you never want to be forced to sell a property. But as the values go down, it’s even more important to protect yourself.
When is the best time to buy property?
It’s easy to identify ‘good’ times to buy property in retrospect, but no one has a crystal ball. We don’t really know where the property market is going until it actually happens.
And besides, while we can see there have been better times than others to buy property, values have consistently increased over the long term. That means your property would have increased in value over any 10-year period.
This suggests that the best time to buy was 10 years ago. The second best time is today.
My view is that if property is on your financial roadmap now is a great time to buy. If you’re not sure, you can take advantage of the situation, pick up a property that was a good investment six months ago at a high price, and continue on your money journey.
Finding a good quality property is very important, and having a solid plan to hedge your risk is very important. But fix these two things and you’ll set yourself up for success, and position yourself to get out of the turmoil you’re in.
Buying property can be scary at the best of times, but even more difficult when fear and uncertainty abound. But property has been one of the most effective ways to invest in building wealth in Australia for the last hundred or so years, and I don’t see that changing anytime soon.
Take the time to fine-tune your approach, then make it happen – your future self will thank you for it.
Ben Nash is a financial expert analyst, podcaster, financial advisor and founder of Pivot Wealth and author of the Amazon best-selling book ‘Get Unstuck: Your Guide to Creating a Money-Unlimited Life’.
Ben has launched a series of free online money education events to help you get on the front foot financially. You can see all the details and book here.
Disclaimer: The information in this article is general in nature and does not take into account your personal objectives, financial situation or needs. Therefore, you should consider whether the information is appropriate for your circumstances before applying it, and seek professional advice from a financial professional when necessary.