How property market cycles work in real estate
Heated market, softening market…we’ve all heard the snappy terms that get bandied around in the media when it comes to commentary on the property market.
But what do they really mean and why should they matter to buyers and sellers when the simple aim is to purchase or sell a home?
Here’s a brief insight into how property market cycles work and why it matters when you’re buying or selling real estate.
It’s all about supply and demand
Like any market, the property market is all about supply and demand. If there is a lot of supply of any product, prices tend to decrease because that item is easier to come by. Conversely, if a product is in short supply, there’s more competition to secure it, its value increases and it is worth more.
In the property market, it’s no different with prices rising and moderating all based on market demand.
But the thing about the property cycle is, a lot of external factors affect just how in-demand properties might be at any given moment in time.
How easy is it to borrow money?
As much as we would all like to purchase property with the spare change that’s available in our bank accounts, the reality is few of us have the savings required to purchase a property outright.
That means a loan from a bank will be required. Depending on interest rates and lending criteria, this loan might be easy to obtain and affordable to service or require us to meet specific conditions and outlay significant additional funds to pay interest and the loan each month.
In recent times, borrowing money has been highly affordable, with interest rates at historic lows. But now the cost of borrowing money (the interest rate) is rising, which makes it more expensive to purchase an average priced property than it was just a year ago.
Like it or not, the property market responds to this increased cost of lending. Buyers revise their budget to factor it in and some prospective purchasers exit the market altogether, reducing the demand for the available property supply.
How tight is the cost of living?
The cost of borrowing is just one factor that reduces the volume of buyers considering purchasing a property. Another major element is the cost of living at that moment in time.
When we talk about cost of living, we’re talking about the price of the normal things we all do, like buying groceries, refuelling our cars, taking holidays or paying for general services.
When the cost of living (inflation) rises, there is less money left over in the household budget each month, which in turn affects the ability to service a loan or expend money on extras like holidays and luxuries.
How plentiful is property in a specific area?
As we mentioned, the property market is always based on supply and demand. So if property is rare in a sought-after area, it may continue to command high prices.
These areas don’t have to be high-end luxury parts of Australia either, they can also be regional areas or outer-ring suburbs where the property is in demand for lifestyle reasons, or because it offers better value than elsewhere.
Property has increased in value over the long-term
While the property market does indeed work in cycles where there are periods of growth and then contraction, the reality is Australian median property prices have consistently increased over the long-term.
In other words, a property that was purchased five, 10, 15 or 20 years ago is worth more now, despite the dips, interest rate changes, and economic cycles along the way.
Looking to buy or sell?
If you’re considering buying or selling a property, why not chat with one of our friendly agents on 1300 438 439?
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