The House Price Recovery Has Begun. Will You Miss Out On The Next Boom?
If you’ve kept your eye on the property market over the course of the year, you’ve seen a lot of doom and gloom. However, the market has quickly turned the corner and many slow moving investors are about to be caught out, again !
Towards the tail-end of 2018, the property prices in Australia’s major cities started declining. In fact, we’ve seen both Sydney and Melbourne struck with marked price drops.
The media, particularly economists, have taken this as a sign that a property bubble is on the verge of bursting.
They claimed that Australia’s property prices rose too rapidly and we’re now seeing a huge market correction.
But they’re not telling you the full story. There’s no denying the fact that we’ve seen prices decline in several major cities. However, that doesn’t mean that you have to put a stop to your investment activities.
In fact, now is the best time for you to invest in property in Australia.
What the Economists Are Telling Us
The general consensus is that the property market is in a period of extended cooling. Economists argue that this is the result of a number of governmental and regulatory changes. For example, we’ve seen an increase in the tax rates applied to foreign investments. Plus, we’ve seen the implementation of tighter home loan criteria.
Both of these incidents led to the demand for properties waning.
According to the Australian Bureau of Statistics, this decrease in demand for property resulted to large price decreases at the beginning of 2019. In fact, prices in the major cities declined by 7.7% during the first quarter of the year. That’s a marked contrast to the 2.2% increase recorded during the same period in 2018.
The annual figures don’t make for prettier reading, as demonstrated below:
You will note an extensive dip that begins partway through 2017 and into 2019. According to this chart, national property prices declined by almost 10% between 2018 and 2019.
It’s data like this that economists use to cast a sour picture of the current state of the property market. We’re going to explain in more detail why this picture isn’t accurate in a moment.
But first, please take a closer look at the chart above.
You will see that Australia’s property growth experienced significant dips in both 2009 and between 2011 and 2012. However, you will also see something else that occurred on both occasions.
Shortly after the dip, the market rebounded and we entered periods of price growth.
What you see here is a pattern. Occasionally, both external and internal influences will cause property prices to drop. In the case of the current decline, we have the factors mentioned above to thank.
However, once the market adjusts to these influences, we then see a period of recovery and extensive growth.
That’s what we’re going to see in the current market. In fact, that recovery has already started.
The Cash Rate Conundrum
Beyond the news of price decreases, you’ve likely also read about the freefalling Australian cash rate.
Currently, the rate is at a record low of 0.75%. Furthermore, the rate has been in near-constant decline since 2012, as this chart demonstrates:
As you can see, the declining cash rate also influences the interest rates that lenders attach to their mortgages.
Again, the economists take this as a sign of doom and gloom. Of course, there are issues to contend with here in terms of wage stagnation and business slowdown. But the key point of contention lies in how the lower cash rate affects the property market.
Some economists argue that the lower cash rate shows that Australians aren’t in an ideal position to purchase property. However, the data runs contrary to this point:
Here, we see consistent growth in the mortgage market over a 16-year period. If the lowering cash rate is an indicator that Australians don’t have enough money to buy, why do we see this growth?
The simple answer to that is a lower cash rate creates opportunities. As a potential buyer, you can access lower interest rates on home loans. This results in greater access to loans, which makes it easier for you to enter the market.
In addition to the cash rate declines, 2019 has also seen the APRA ease some lending restrictions. Specifically, they’ve removed the 10% cap on investor loan growth. Plus, they’ve removed the 30% cap on interest-only mortgages, which investors favour.
What we see here are the signs of a market that’s ready to enter the recovery phase. This phase means home loans are easier for both residential buyers and investors to access. Lower interest rates also make taking out a loan now more attractive than it’s been in many years.
There’s an opportunity in today’s property market. Of course, that assumes that you’re brave enough to step forward and take it.
The Recovery Has Already Started
Warren Buffett once said:
“Be fearful when others are greedy and greedy when others are fearful.”
For the past year, economists have done a spectacular job of creating fear in the property market. They’ve convinced us that the market is in a freefall and that buying in 2019 is an unwise choice for an investor.
However, the reality is that now is the best time to invest. In fact, waiting any longer could result in you paying more for your property.
That’s because the recovery has already started.
We simply need to look at CoreLogic’s Index results for October 2019 to see the evidence:
Pay particular attention to Sydney and Melbourne. Both of these supposedly “doom and gloom” cities saw price increases in October 2019. Furthermore, those increases extended to the entire Q3 period of the year.
The Simple Message
Now is the time to get greedy instead of fearful.
The “bursting bubble” is actually just a bump in the road. It’s simply a market correction influenced by several external factors. And as the above chart shows, the market is already on the road to recovery.
You need to buy now if you’re to reap the full rewards of the upcoming growth period.
That’s where Freedom Property Investors can help you.
We help busy professionals invest in high-performance properties. What’s more, we don’t recommend an investment opportunity unless we take it ourselves.
Would you like to find out more?
Here are three things that you could do today to start your investment journey:
- Schedule a one-on-one strategy session with us.
- Attend one of our live events.
- Watch our web class.