We all know that property runs in cycles and that there is usually a long drawn out upward movement, followed by a flattening of the market, then a slight downward correction before another flattening out. Then the cycle begins again. This can take anything up to 7 years to complete.
We have seen this cycle run through twice since 2007. So what is changing? I think there are two major reasons. One is the world economy and the other is Australian population growth.
The world economy has never seen the likes of the GFC before. It hit hard and hit nearly every major economy in the Americas and Europe. There was a worldwide finance shortage and most western economies that had built their financial institutions on a house of straw (sub-prime mortgages) came tumbling down.
Australian banks had not done this! Our economy is linked to Asia, mainly China, which was and still is firing on all cylinders. Our economy has continued to grow whilst nearly every other Western nation has faltered.
Population growth in Australia has remained buoyant and strong and if the politicians allow more immigration then our population will increase even quicker. And it needs to! We have a severe labour shortage which will only get worse. And this is the “Catch 22” The more our population increases, the more we have a housing shortage! We then need to bring in qualified tradesman from overseas and this creates the cycle of needing more accommodation for them.
What this means in the housing market is compressed cycles. I believe this will be a continuing trend in the future. We will see large spikes, quick small corrections then a short six month flat period before climbing again. People’s confidence will wane whilst listening to the global economic news, then the reality will hit home that we have a growing population and a housing shortage and investors will look to capitalise on cheaper properties.
As many mortgage brokers have said recently, there are a growing number of pre approvals in place for investors waiting to get into the market. I believe we will see this in Spring this year or at the latest early next year. It will manifest in a short sharp increase in price then a flattening out as more property comes onto the market.
Overall, it means buying property is not timing the market, it is simply a matter of time in the market.
Ian James
Director JPP Buyer Advocates