Well the BOOM is here, in particular we are seeing a property boom in Brisbane. If you were ever thinking of selling your property, now is the time.
Why should you sell now? Because there is a shortage of properties on the market at the moment. Due to that you are literally guaranteed of a sale. You could sit and watch the market and see how high it goes however you may also miss the opportunity to take advantage of the price rise. If you list on the other side of the boom when others start listing their properties then you will miss out. I am not trying to feed the frenzy, however the sooner you enter the market the better.
Interest rates are holding steady and low (money is cheap to borrow at the moment), we doubt that they will increase in the near future. There are still considerable grants and incentives that are available and therefore, you may be able to borrow and service more than you previously could have.
It is a great time to be in the market at the moment.
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The Reserve Bank of Australia (RBA) has kept the cash rate unchanged in May following its monthly board meeting, despite surging property prices and a resurgent economy.
RBA governor Philip Lowe said the central bank “would be monitoring trends in housing borrowing and the maintenance of lending standards carefully” given that prices were rising in most markets.
However, the RBA’s board “will not increase the cash rate until actual inflation is sustainably within the 2 to 3 per cent target range.”
This is not expected to happen until 2024 at the earliest.
It’s simple to spot a boom cycle retrospectively, but predicting which areas are set to surge is much more difficult. Although there’s no certainty that property prices will rise or fall, it’s important to be aware of the signs of a boom cycle.
SUPPLY AND DEMAND
The key to understanding a boom cycle and making a good investment revolves around supply and demand. To put it simply; as supply exceeds demand, prices fall, and when demand exceeds supply, prices rise.
According to CoreLogic, the balance of supply and demand generally dictates housing values. Therefore, it’s necessary to understand what influences this balance. Tim Lawless, CoreLogic’s Research Director, says “watching out for factors that could affect either side of the equation is essential to getting ahead of the curve”.
“On the supply side, markets with a shortage of supply, either advertised supply or newly built supply, can be easy to find. For example, CoreLogic tracks listing numbers closely, as well as building activity, to gauge market supply.
“Scarcity of supply amidst rising demand can cause prices to rise.”
Real estate demand can be harder to analyse and identify as there are more factors that impact this side.
“Demand can be influenced by migration trends, investor activity, monetary policy factors such as interest rate settings, finance availability and government incentives such as stamp duty concessions or grants. Large infrastructure projects such as new gas refineries, or mining projects can have a sharp but temporary influence over demand, often amidst tight supply constraints,” says Lawless.
WHAT ARE THE SIGNS?
It’s impossible to predict a boom cycle with 100 per cent certainty, but there are key signs that may point towards rising house prices. As the relationship between supply and demand is constantly changing, there are ways to stay ahead of the market by understanding certain indicators. According to Lawless, there are five key signs that the market is set to boom:
DIMINISHING INVENTORY LEVELS AMID RISING BUYER ACTIVITY
As demand is increases and supply drops, available housing will most likely increase in value. For example, an influx of interstate migration has seen rising buyer activity in Queensland. Partnered with an 11.3 per cent drop in the number of listings, this rise in buyer activity positively impacted housing prices. This can be seen as the median sale price for houses in Queensland rose by 1 per cent in the 12 months to September 2020, according to the latest Queensland Market Monitor.
SHORTENING SELLING TIMES
This represents a clear spike in demand and is another indicator that prices may rise. When properties spend less time on the market, it’s clear that the demand is high and may lead to shortening supply levels if the market doesn’t accommodate. The impact of shortening selling times could be seen on the Gold Coast throughout the September 2020 quarter. The annual median house price in this area grew by 3.2 per cent as the annual median days on market dropped by 12 days.
NARROWING IN VENDOR DISCOUNT RATES
High discount rates often mean that the market is weaker, and the demand is lower. Whereas, low rates usually mean that there are more people looking to buy. This competitiveness results in narrowing vendor discounts as there is less of a need to incentivise buyers. With properties in regional Queensland growing in price, the median vendor discounts in these areas have dropped significantly compared to other areas. For example, Rockhampton saw an annual house price growth of 6.7 per cent, while the vendor discount rate dropped by 2.2 per cent.
HIGH AUCTION CLEARANCE RATES
This generally means that the market is growing. It shows most buyers are willing to pay the sellers reserve price or more to be the highest bidder. This represents another indicator of increased demand and will generally mean that house prices are rising.
FALLING INTEREST RATES AND IMPROVING CREDIT AVAILABILITY
The falling interest rates and improving credit availability is a sign that house prices may rise as it’s much easier to borrow and invest. Historically, Australian house prices have responded positively to this. Additionally, falling interest rates make investing more achievable, and gives first home buyers more of an opportunity to enter the market.
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