Should we buy or wait?
This is a question we get asked all the time. It is important to look back at some historic reference points and data before looking into our crystal ball for what is about to come. Please note these statistics are not as per RP data official figures and are more about my gut feel and from chatting with industry insiders. Hard facts don’t expose all the human effects that change values. Stats on specific years and suburbs are skewed by certain factors. A brand new house will have a premium versus selling it 1 year later when it’s a little tired. Some people want to sell quickly and not necessarily for market value. This can cause prices to go up and down. So I am working on what I have seen. We want to answer the questions we get asked the most in this current market:
What is the real-estate perfect storm?
Why have the prices risen so quickly?
Can prices continue to go up?
When is there going to be a price drop/is this the right time to buy?
Let’s tackle these one by one…..
The perfect storm
The current rapid increase in prices is a result of what I like to call the perfect real-estate storm.
a. Low interest rates – in fact lowest interest rates in history…you can afford to borrow a lot more today. And there is talk of them dropping further.
b. Low Aussie dollar - The Aussie dollar is falling, so all the Expat Australians earning in foreign currency suddenly have more to spend and they want to enter the property game. This is the same for foreign investors who get about 20% more Aussie dollars this year vs last year. So property is 20% cheaper.
c. Low stock levels – As prices rise quickly, people who want to up-size are not selling. They are worried if they sell they will be priced out of the market and hence they are holding on to their home/unit. The less stock there is the more we pay to get it. The old supply and demand chestnut.
Why have the prices risen so quickly?
To answer this we need to look at some recent history. The last real estate bubble to have burst in the east was a couple of years after the GFC. Our prices flat lined and softened, but it wasn't till around 2011 that we saw properties selling for a definite drop. I personally had seen properties sell for what could only be called unrepeatable bargains. Part of this was low consumer confidence and part of this was what I like to call “the big free superannuation top up”. Howard let everyone invest up to $1m into their super fund tax free. The local property investors sold and prices came down…..Then there was about 2 years of flat property prices. Some prices went up, some went down and some suburbs became more popular. But all in all the east stayed level. Then in spring 2013 the season started, the sun came out and record after record sales started. So if we assume the following numbers as approximate gut feel:
Year Movement Percentage
2010 Drop -5%
2011 Drop -10%
2012 Flat 0%
2013 Rise 5%
2014 Rise 7.5%
2015 Rise 7.5%
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Over the 5 years, there has actually been only 5% growth.
And if the 60 year average is a 3% growth per annum, we should have seen at least another 10% growth. We are still behind…..and my gut feel is more growth before it flattens off.
Can prices continue to go up?
The biggest statistic to understand is that Australian house prices have historically increased approximately 3% per annum since 1960. This answers the question, full stop. This is the one that we always get asked in a myriad ways. Can this growth be sustained, can this keep going on etc…. The answer is a resounding yes. Eastern Suburbs prices will always go up over an extended period of time, they always have increased! Sorry to be the bearer of bad news…but deep down you already know the answer to this question. Now people ask, WHY?????
Inflation
Increased cost of living
Increase in demand
Pick which ever one you like and then remember that all the other reasons also apply to increasing property prices. Almost everything in life is becoming more expensive. Sure there are going to be troughs and peaks but the average over a long period of time and there is only one trend UP.
When will be the next drop? Is this the right time to buy?
This is almost impossible to predict, in fact it is harder to pick than the Melbourne cup winner. My wise old grandfather use to say…
“Open the paper with property listings from ten years ago. Throw a dart and whatever it lands on, would you be happy to own today, at the price it sold for 10 years ago?” The answer is the vast majority of the time a resounding YES.
We don’t know when the next price drop/correct will occur. But if you are a buying a home and wanting to hold it for the next 10 years, don’t over extend yourself, and get into the Eastern suburbs property market.
Disclaimer: All facts and figures are based on gut feel and may not be accurate.
