What’s ahead for Hobart’s property market? Understanding the property cycle.
Australia’s property market has received significant coverage in recent years. Initially, for the market growth, rising house prices and speed at which homes were selling. Like everything in life, nothing lasts forever, and as market values have declined, the positive press has stopped. Over the past year, values have fallen in all capital cities except Hobart and Canberra, leaving many uneasy about entering the market.
The Hobart property and real estate market seems to remain steady moving forward in to 2020 and, in some cases, has continued to grow.
CoreLogic’s July 2019 report reveals national dwelling prices have dropped by 8% in the past 12 months, with falls of 9.9% in Sydney and 9.2% in Melbourne. Hobart’s property and house prices, on the other hand, have increased 2.9% in the past year and 5.6% in regional Tasmania. So why have market prices been predominantly dropping and what is ahead for Hobart's property market?
Source: CoreLogic July 2019
The Natural Property Cycle
Like the tides, sun and seasons, the real estate market are continuously moving through a natural cycle. This cycle is driven by economic, social and political issues and consists of four phases: ‘boom’, ‘slowdown’, ‘slump’ and ‘recovery’.
Image Source: Renovating for Profit
The ‘Boom’ Phase
During this phase, the property is a hot topic. Interest rates are often lower, and loans are easier to acquire. Homes tend to sell faster and for more competitive prices than most expect. These are all an indication of a strong property market, so more people want to get in on the action. This increases market demand and keeps pushing prices up.
In the decade to January 2018, we witnessed 41.8% growth in property markets nationally. Hobart saw a 29.5% increase in dwelling values over the decade, while Melbourne and Sydney’s market values grew an enormous 72.4% and 79.3% respectively during the same period. Growth such as this can only be described as a ‘boom’.
Like all boom phases, they begin slowly and gain speed towards the peak. This was evident in Sydney when house prices surged almost 20% in the 12 months leading up to the peak in 2017. This kind of growth is impossible to sustain. The higher the prices get, the more unaffordable properties become. Before we know it, the property market has reached its peak and purchasing demand slows. We then move into the subsequent natural phase of the cycle: the ‘downturn’.
The ‘Downturn’ or ‘Slowdown’ Phase
At this point, there are still many sellers in the market, but buyers have decreased. Loans can become more challenging to secure, sales slow, and growth flattens out. If buyers in the market can’t afford the high prices, properties remain on sale for longer and prices eventually fall. This is what we have been witnessing across Australia recently. During this time, Hobart has continued to thrive and is only just showing signs of slowing down.
How far each property market drops will vary across the nation. The outcome will be influenced by consumer confidence, income levels, affordability, interest rates, mortgage availability and government stimulation – to name a few. Due to so many varying factors and local influences, the nation’s cities and states can experience different positions on the property cycle simultaneously. It also means some segments of the market will fall significantly, while others will weather the change well.
Despite dramatic market declines across the nation, Domain’s June quarter statistics show a 0.7% growth in Hobart’s median house prices. This brings the state’s capital to a 3.9% increase since the start of 2019. This is the smallest annual increase since 2016, which indicates Hobart’s sales have begun to slow, but the report forecasts stabilisation for house prices in the remainder of 2019 before modest growth again in 2020.
According to Michael Yardney, Metropole Property Strategist’s Director, “it wasn’t that long ago that the media was predicting housing market Armageddon. But the property pessimists have been proven wrong, and as green shoots are appearing, it looks like we’re reaching the bottom of the property cycle.”
Once we reach the bottom, the market stabilises.
The ‘Slump’ or ‘Stabilisation’ Phase
The bottom of the cycle is an excellent opportunity to purchase a property. However, it can be hard to pinpoint until it has already passed. Experts are currently looking for a drop in the time it takes to sell a home, a decrease in vendor discounting and more properties to enter the market before they are prepared to call a market ‘bottom’.
There are positive signs, though: interest rates have fallen, consumer confidence is growing, and our government and taxation system are much steadier.
Although fewer homes are listed for sale during the initial stages of this phase, buyers will begin to tentatively move back into the market, and the recovery phase will kick in.
The ‘Recovery’ Phase
Once prices have stabilised at an affordable level, home buyers and smart investors begin to re-enter the market. Interest rates are usually low during this phase, and it is often easier to get finance, so buyers begin to increase. Builders and developers start work on new projects in anticipation of selling during the next ‘boom’, and confidence in the property market begins to improve.
Domain’s mid-year market forecasts are already indicating moderate growth in property for 2020, including an annual increase of 2% to 4% in Hobart’s house prices and 3% to 5% in the capital’s unit prices.
The gentle increase in dwelling values and improved market conditions lead to higher demand from buyers, and so the market begins to grow again. Over time, growth will pick up speed, and the cycle will eventually move back into the following phase: another property ‘boom’.
In the meantime, buyers can enjoy more affordable real estate as we wait for the market to move through its natural cycle.
How to make the most of the property cycle
Real estate cycles can be hard to predict, particularly because the factors influencing the phases are so complex. Despite varying economic, social and political influences, each cycle in Australia usually lasts around seven to nine years. Unless you’re planning to ‘flip’ a house, property is a long-term game.
If you undertake a buy-and-hold strategy, there will be downturn and stabilisation periods, but your average property growth rate will increase over a long period. It’s also important to recognise that what is a ‘low’ in the market today was once a ‘high’. This means it’s more important to focus on buying a property in a proven location than to buy during a particular phase of the cycle. A strong strategy is to look for areas with above-average long-term capital growth at a price suited to your lifestyle and budget.
The key is not to get carried away by a boom or disheartened during a slump – there is no ‘perfect time’ to buy or sell. If you purchased at the peak and your property price has dropped, it will increase again in time. If history is any indication, your property’s price will most likely surpass the previous cycle’s ‘boom’. If you’re hoping to sell soon, with growth rates slowing, you could get a great deal on your next property!
Like booms, downturns and stabilisation periods don’t last forever, and there are ways to take advantage of them. It is well worth seeking professional insight to make the most of current market conditions. Contact a trusted property advisor or strategist, or talk to us at Fall Real Estate to determine the best course of action for you and your real estate goals.
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