Has the housing market reached its peak?
At the tail end of last year, I was of the view that more stable market conditions were likely on the cards for Australian real estate. In recent times, growth in the market has been propelled beyond what many expected, and there has been much discussion of late about whether the housing market has finally reached its peak.
Weaker housing growth has been recorded in April, with CoreLogic data showing a 0.1% increase in dwelling values across the combined capitals over the month. CoreLogic reports this as the slowest month-on-month growth since December 2015. Interestingly, growth in Hobart surpassed the two heated capital city markets of Sydney and Melbourne, recording a 5.1% increase in dwelling values over the quarter compared to 4% and 3.9% respectively.
Have we reached the top of the market?
Opinions seem to be quite divided on this issue. Tim Lawless of CoreLogic advised caution in “calling a peak in the market after only one month of soft results.” On the other hand, UBS recently called the top of the Australian housing market, noting that whilst the common trigger of a rate hike is not present, banks are independently rising mortgage rates and sentiment appears to be low.
My view on all the speculation is that we cannot really determine the top of the cycle due to the existence of so many marketplaces within one country. The Australian property market should not be viewed globally based on what is happening in Sydney and Melbourne. It appears that some may be focusing on these two major capital cities in speculating market peaks that aren’t necessarily reflective of conditions elsewhere.
In some markets around the country, the top of the market has already come and gone. For example, the Perth property market was fuelled by mining activity and as this activity has slowed down significantly, we are seeing the aftermath with the market facing an oversupply of stock in some areas and property owners struggling with negative equity in some parts.
The good news for Perth is that some areas appear to be experiencing increasing investor interest, as vacancy rates have decreased and property can be secured at an attractive price. Investors should still remain wary of increased rental competition and potential reductions in rental return due to this influx of interest.
The Sydney and Melbourne markets likely still have more room for growth, and I don’t think they are quite at the top just yet.
However, we are seeing demand changing and cooling slightly in some parts, with the number of people attending open for inspections appearing to be slowing down. The offers and bids are still there though, and I believe these markets will continue to offer plenty of reasonable opportunities for growth, as Sydney and Melbourne are expanding cities and supply is still less than demand in many parts.
An unknown factor for the market will be how the influx of apartments will impact conditions over the next couple of years. There has been much talk about potential apartment oversupply, however no one can accurately predict what will happen when the new apartment stock hits the market for sale.
A more cautious outlook
Perceptions of property transactions appear to be changing, as many Australians are viewing potential transactions with increasing feelings of caution. I believe this can be attributed in part to tightened lending and increased regulation of housing finance.
Regulators have been doing a good job of creating an environment of caution, and with the Reserve Bank of Australia leaving the official cash rate on hold, and lenders independently increasing investor rates, some are changing the way they view and secure finance.
I believe it is a positive that many Australians are becoming more conscious of the fact that low interest rates may not necessarily stay this way for a long period of time. As a result, they may more carefully review and assess their financial position in relation to opportunities, rather than rushing in to buy.
The changing role of agents
Over the coming months, I believe the role of agents may become more prominent in changing market conditions. In busy markets, it may seem as though houses can virtually sell themselves, however I believe there will be increasing reliance placed on real estate practitioners to bring together buyers and sellers to negotiate a price that all parties are happy with.
As always, I remind prospective vendors not to be deceived by an appearance of success when choosing an agent. Look for the most sold signs – these are the agents who should be attracting your attention. It is not the agent with the most listings posted on Facebook, or the agents with the flashiest marketing, but the agent with the most results in the field who will be your best ally in achieving positive results.