This Property Boom is Being Driven by Upgraders

Would you like to know what’s driving this property boom?

To understand this in more detail, it is important to appreciate where the demand is coming from and what may be driving it?

In past cycles, cheaper credit has seen investors get into the market in stronger numbers, driving up property prices.

This has seen APRA intervene to tighten credit to slow the cycle or the RBA raise the cash rate.

This time around it is different and with demand from investors barely currently making up 20% of the market - Home Buyers are the driving force.

Home Buyers is a broad term, it is in fact a perfect storm of different types of home buyers that are driving demand for property.

This is the cycle of Upgraders.

Here are my thoughts.

First Home Buyers

First home buyers are an integral part of every property cycle.

Thanks largely to a range of stimulus and concessions introduced by the government, the percentage of first home buyers in the market has almost doubled from a few years ago.

The stimulus is mostly linked to newly constructed properties, which then flows onto the developers and the construction industry.

Other concessions like Stamp Duty and additional borrowing capacity from the bank of Mum and Dad are also driving demand in strong inner-city, entry-level suburbs.

First Home Buyers are causing a ripple effect as they take the homes of sellers that are now ready for an upgrade of their existing homes.

Tenants

Tenants are also looking to upgrade to become homeowners.

Due to relatively low-interest rates, it can be cheaper to buy and live in your own home, rather than paying rent.

We are regularly seeing this in Brisbane where vacancy rates are getting closer to zero and rents are rising.

This demographic in particular will take the mantra that rent money is dead money.

There will always be headlines claiming the property is unaffordable, but for those whose goal it is to own their own home, there has never been a more affordable time.

These tenants, come home buyer types are also picking up those entry-level homes that the more established home buyers are now selling.

Upgraders

There is no doubt that the lion's share of people driving this demographic is the upgraders.

Perhaps driven by cheaper money, or wanting a change post lockdown, they are out in force and heading to an open home near you.

These types of home buyers are relatively impatient and are emotionally charged.

We are seeing this play out currently with many commentators noticing the FOMO trend creeping into a cycle that is only 3 to 4 months old.

They may also be driven by an extended period of “forced savings” due to Lockdowns and Border closures and have above average rates of savings to contribute.

After weekend upon weekend of unsuccessful offers, they buy emotionally and think nothing about paying an extra 5% or 10% above market value.

After all, what are an extra $50,000 for your dream home and the restoration of your Saturday back?

Downsizers

Hang on…. how can downsizers be upgraders?

Not by finding a bigger and better home, more in the sense they are perhaps looking to sell the larger family home and move on to upgrade their lifestyle.

The big 4 bedroom family home requires too much time and energy to maintain now the family has all moved out.

The minority may look for a sea change or a tree change, but the majority will be looking for high-quality, low-maintenance living, knowing this will likely be their last home.

They will also require liveability and will favour high walkability to lifestyle precincts and amenities.

The 20 Minute Neighbourhood concept comes to mind for this demographic.

What Will Stop Prices Rising

In the last boom driven by investors, it was the regulators and a restriction in the availability of credit that stopped prices rising.

In the past the RBA has also had a role to play by rising interest rates.

But this time around it will be different for a few reasons.

Firstly, it is Home Buyers currently driving the market, and both APRA and the RBA are more comfortable with debt being in their hands.

Both have also come out openly to state that they have no intention of intervening at this stage.

In fact, a rise in interest rates would be counterproductive to the RBA’s agenda given inflation is still well below their target range and we are yet at reach full employment.

Over the longer term, they may play a part, but in the short term, it will come down to one key factor – Affordability.

In other words, who has deeper pockets.

Summary

We have seen our property prices rising at the fastest rate in decades.

Perhaps it is the more emotional and impatient homebuyers rushing to get into the market causing this.

In past cycles, investors have taken a more measured approach.

But with a perfect storm of Home Buyers and FOMO creeping in, it is certainly running hot.

First Home Buyers and ex-tenants are creating a ripple effect, taking the homes of established buyers and downsizers.

This in turn leaves the upgraders and downsizers homeless and hungry for their dream home.

The RBA and APRA are taking a wait-and-see approach and have no intention in intervene at this stage.

So, it will come down to affordability and who has the deepest pockets for this cycle to end.

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.
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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.