As the property cycle shifts from the astonishing highs we witnessed during 2009 and earlier this year to a more stable trajectory, many potential home buyers and investors are asking; is now the right time to buy property?
With conflicting reports from analysts about property bubbles, over-inflated house prices, a looming tumble in housing values and interest rate uncertainty; it is no surprise that the answer to this question is not that straightforward.
According to a recent report in The Australian, our national housing market recorded an average total increase of 16% over 18 months from the end of 2008, rising like the proverbial Phoenix from the ashes of the global financial crisis.Of course property values are now cooling off, but rather than tumbling in a heap due to a bursting price bubble as some were predicting, the market is seemingly moving sideways. As a result instead of property prices coming down, they continue to sit at record high levels.
The report cites data from Australian Property Monitors which indicates that the national median unit price hit a record high of $402,945 during the June quarter this year, while the median home price peaked at $558,540; representing extraordinary growth from its previous high of $486,751 in the March 2008 quarter.
June marked the turn around for our property markets, with the RP Data-Rismark House Price Index recording a seasonally-adjusted dip of 1%, which was immediately followed by a 0.4% increase in July.
Managing director of Rismark Christopher Joye says he expects prices to remain relatively stable for the remainder of 2010, but questions what’s in store for us during 2011.
“I think if we move into three, four or five [interest rate] hike territory, that is going to put downward pressure on property prices. We could see a repeat of 2008 [when prices fell 2.6 per cent],” he says.
Working in favour of Australia’s property markets are certain underlying fundamentals that could continue to prop prices up, even though many suggest that affordability is becoming an ever increasing problem and that national house prices need to come down in order to address this ongoing issue.
We have a strong economy, which HSBC expects to grow between 3 and 4%, a robust employment market and it is expected that higher interest rates will push rents (and therefore yields) up, as some home owners are forced back into the rental game; all factors that give potential investors the confidence to make a move.
Motivators such as these enticingly higher rent returns make investors see property as offering good opportunities despite historically high prices, says head of research at Residex John Lindeman.
“[Since 2007] the value of Australian houses rose by 18 per cent, bucking not just the impact of the GFC but also the trend in other housing markets around the world,” he observes.
So if now is a good time to invest in real estate, where should you be looking? RP Data research director Tim Lawless suggests the best prospects for those chasing capital growth are cheaper suburbs within 10km of central business districts and outer suburbs for rental returns.
Lawless says if it’s strong rental returns that investors with an appetite for risk are after, they should look to outer, fringe suburbs in all capital cities. Here, he says, “house prices are very cheap and rental rates are comparatively high. However, in many cases these same regions are not prone to strong capital gains. A variety of factors may be holding these suburbs back, including distance from the city or an efficient transport corridor.”
Subscribe & don’t miss a single episode of michael yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to michael yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.