After a few years of strong growth in real estate, we’ve seen a considerably softer market during the first six months of 2018. The overall dwelling price growth has slowed from double figures in 2017 to single figures in first half of 2018.
Despite this, the key economic indicators are still strong:
• Interest rates remain at their lowest levels in living memory.
• The employment rates are high, and most sectors of the economy are growing.
• There is still strong interstate and overseas migration to Australia with around 100,000 new entrants each year to Victoria alone.
• We have an acute shortage of housing stock, which usually leads to a growth in capital value.
So why has the property market stalled?
Money is the oxygen that fuels the property market. But with major banks tightening their lending requirements it has become harder for investors and first home buyers to qualify for a loan, lowering the number of people able to buy property. The current negative sentiment and tightening monetary policy environment has without a doubt contributed to the slowdown of the property market.
With less room to negotiate with the banks, consumer confidence has fallen during the past seven months (according to Westpac Melbourne consumer confidence index), which has made people more hesitant and less confident to invest in the current property market.
We must also consider the upcoming Elections. The Victorian State Election will take place in the middle of the typically booming spring property market and will be followed by a Federal Election in 2019. There is a common trend that during election years the market becomes more uncertain and generally buyers pause to assess the outcome and effect of a policy change. As we approach the Federal election the debate around negative gearing and capital gains tax will be loud.
What sectors are still performing well?
Even though we have seen signs of a cooler market, all sectors have not been affected. The residential new land and first home buyer market remains strong, in fact, residential land purchases, in some of Melbourne's outer north and western suburbs, have grown 30 per cent price over the past 12 months.
Some of Victoria’s regional towns, such as Geelong, Ballarat and Bendigo, have also experienced above long-term capital growth rates.
Good properties are still sought after and are performing very well. Older style apartments have outperformed dwellings during the last year, however, new, high density investment
grade apartments and off the plan remain sluggish. Large family sized owner occupier targeted apartments are faring better.
Properties priced in the $1million - $3million price range seem to be experiencing a slowdown in demand, with more of properties within this bracket tending to pass in at auction. Interestingly, there is evidence to show that renovations are becoming more popular, perhaps in part due to the popularity of television renovation shows such as The Block but also because it is also often cheaper to renovate and extend rather than to sell and buy something else.
My forecast for the second half of 2018
With both State and Federal Elections looming, consumers are going to become even more cautious about spending until the election results are known. The Banking Royal Commission has the eyes of the media on our major banks and we are clearly in an environment whereby there is less appetite for risk.
My role as a Property Advisor is to ensure I provide the best advice to my clients so I keep a close watch on:
• Any increase in interest rates
• A rise in unemployment
• Global economic outlook
• Credit squeeze
We’re currently in the middle of a buyer’s market where one can afford to be choosy. Good property will still sell, but we are seeing more buyers becoming auction shy and properties passing in, right now and for the remainder of the year both vendors and agents are more likely to consider genuine offers before auction.
It’s a good situation for those looking to enter the property market with improving housing affordability.
However, it’s not so good if you are planning to offer your house for sale this coming spring – the key is to engage an agent with strong credentials and seek independent property advice to ensure that your always in a position to make smart property decisions.
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