The Top 5 Factors that Drive our Property Markets

Would you like to understand the key factors that drive our property markets?

These key drivers can be critical when selecting the right asset to fast-track your wealth creation journey.

Considering the current environment, I would argue, it is even more important now than ever, as we head into an environment of low economic growth.

Following a proven path and strategy during these times is also essential.

Many will chase the latest fad in order to boost cash flow as they attempt to improve their short-term situation.

But the truly wealthy continue to build their asset base by targeting capital growth.

They understand that cashflow keeps you in the game, but it is capital growth that helps you exit.

Here are my thoughts:

1. Household Formation

There is no doubt that population growth is a factor that drives demand for property, resulting in capital growth.

But by digging a little deeper it is even more important to understand Household Formation.

Population Growth may be the big picture, but it is more important to understand how many new households we are forming.

For example, when a family has a new child they make take up an extra bedroom, but there is not a requirement for a new home.

So, by understanding the number of new homes that will be required to be formed as a result of population growth, you will get a much better idea of demand.

You will find most of the demand for new households is in the inner – middle ring suburbs close to employment hubs and lifestyle amenities.

2. Housing Supply

While we continue to see strong demand for new households, the other side of the ledger is supplied.

Currently, there has been an undersupply looming around the country.

Clearly, this will be different from state to state on a macro level and even suburb to suburb on a micro-scale.

I know some parts of outer Melbourne and Brisbane where there are another 10 years of land supply left.

We avoid these areas.

We look for suburbs that are critically undersupplied, where there is no ability for new land or large-scale housing estates.

3.  The availability of credit

Interest Rates and the cost of money is also a key driver as is how keen the banks are to lend money.

That makes sense, right?...  the cheaper money, the more you could potentially borrow and/or the less you will repay.

I believe this key factor is keeping our markets strong during this difficult time of uncertainty and lockdowns.

More specifically, it is home buyers with reliable jobs and a steady income that are seeing this as an opportunity.

A decade ago we saw interest rates in the high 7%’s now, Home Owners have access to rates circa 2%.

The chart below from Dr Andrew Wilson shows the clear relationship between interest rates and house price growth.

4. Local Factors

There is not one Australian property market, as there is not just one Sydney, Melbourne, or Brisbane property market.

There is no better example currently, as we have Melbourne in Lockdown 2.0 and virtually no property activity, while Sydney and Brisbane remain open for business.

Economic factors will play a big part, but I feel a significant driver is employment and job growth.

Brisbane is a great example of this, with a rather benign property market over the last decade due to a lack of job growth.

With more than 50,000+ jobs between the CBD and Airport, our population has started to grow again, causing demand for homes in superior locations.

Another key factor over this period of low growth will be Wages Growth.

While the majority will face no to low wages growth, there is a small group of people with the right type of jobs and multiple streams of income that will continue to push up property prices.

5. Consumer / Market Sentiment

There is no doubt our outlook on life will impact our decisions.

When we feel financially secure and have job security with more likely to make big investment decisions like buying a new home or property investment.

Now that we seem to have worked our way through the coronavirus issues, consumer and business sentiment is improving rapidly.

In Summary

While there are a large number of factors that drive our property market, I have narrowed it down to just 5 key factors.

Factoring in the demand for new homes overpopulation growth will be the key to understanding the demand side.

While digging down and understanding what housing will available will assist with the supply side of things.

Interest Rates and the cost of money will always play a factor and with record low rates there is no surprise to see homeowners keeping our market stable.

There is not one Australian property market, so understanding key local factors like employment and economic issues is critical.

Finally, it is no surprise to see consumer confidence take a nosedive due to recent events.

As people start to feel more certain their confidence will return to make bigger life decisions.

While many will wait this out, the successful will keep moving forward.

Not necessarily by taking action….. yet, but by planning, preparing, and understanding these fundamentals so they can take action when the time is right.

Now is the time to take advantage of the opportunities the current property markets are offering.

Sure the markets are moving on, but not all properties are going to increase in value. Now, more than ever, correct property selection will be critical.

You can trust the team at Metropole to provide you with direction, guidance, and results.

Whether you’re a beginner or an experienced investor, at times like we are currently experiencing you need an advisor who takes a holistic approach to your wealth creation and that's exactly what you get from the multi-award-winning team at Metropole.

We help our clients grow, protect and pass on their wealth through a range of services including:

1. Strategic property advice. – Allow us to build a Strategic Property Plan for you and your family.  Planning is bringing the future into the present so you can do something about it now! Click here to learn more
2. Buyer’s agency – As Australia’s most trusted buyers’ agents we’ve been involved in over $4Billion worth of transactions creating wealth for our clients and we can do the same for you. Our on the ground teams in Melbourne, Sydney, and Brisbane bring you years of experience and perspective – that’s something money just can’t buy. We’ll help you find your next home or an investment-grade property.  Click here to learn how we can help you.
3. Wealth Advisory – We can provide you with strategic tailored financial planning and wealth advice. Click here to learn more about we can help you.
4. Property Management – Our stress-free property management services help you maximise your property returns. Click here to find out why our clients enjoy a vacancy rate considerably below the market average, our tenants stay an average of 3 years, and our properties lease 10 days faster than the market average.

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.