In this article
- Find out what happens in the four different property market phases within the Australian Property Cycle.
- How might the Australian Property Cycle affect you?
Understanding property cycles is crucial for anyone involved in the real estate market, whether you're a buyer, seller, or investor. These cycles, influenced by a range of factors, highlight the rise and fall of property prices over time.
You might have heard the term 'property cycle' but may not fully grasp its implications. Our detailed guide will demystify this concept and explain the four key phases of the Australian Property Cycle, helping you make more informed decisions in the dynamic real estate market.
The simplest explanation is that real estate markets – both locally and nationally – continuously move through cycles in which property prices rise and fall.
These cycles are driven by various factors such as housing supply, buyer demand, the economy, population growth, credit availability, and government policies and incentives.
The four key phases of the Australian Property Cycle, explained in more detail below, are:
- The boom
- The slowdown
- The slump
- The recovery
Predicting the exact moment when a cycle will shift from one phase to the next is very difficult. However, a better understanding of the Australian Property Cycle can help you make more informed decisions about buying and selling property.
Stage 1:
The 'Boom' Phase
During the boom phase of the Australian Property Cycle, property is a hot topic.
Interest rates are often low, and loans are easier to acquire. Homes tend to sell quickly – and it’s not unusual for them to sell for more than the asking price. These indications of a strong property market encourage more people to get in on the action, which increases market demand and keeps pushing prices up.
A report from CoreLogic revealed that house prices in Hobart have jumped by 300 per cent in 20 years, while the Domain House Price Report for the 2021 September quarter showed an unprecedented rise of 31.9%. Growth such as this can only be described as a ‘boom’.
The boom phase tends to be the shortest in the cycle. It begins slowly but then gains speed as people try and benefit from the high prices. Developers, investors and homeowners start to flood the market with properties.
This kind of growth is impossible to sustain. The combination of high prices and excess supply brings the property market to a peak, and purchasing demand starts to slow. We then move into the next phase of the cycle: the ‘downturn’.
Stage 2:
The 'Slowdown' or 'Downturn' phase
When the boom period comes to an end, we reach the slowdown or downturn phase of the Australian Property Cycle.
At this point, there are still many sellers in the market, but the number of buyers has decreased. It can become more challenging to secure loans, sales slow, and growth flattens out. If the buyers who are still in the market can’t afford the high prices, properties remain on the market for longer, and prices eventually fall.
How far each property market drops will vary significantly across Australia. The outcome will be influenced by a range of factors, including consumer confidence, income levels, affordability, interest rates, mortgage availability and government stimulation.
Due to so many varying local influences, Australia’s cities and states can experience very different positions on the property cycle simultaneously. Some cities and regions might continue to see their highest ever prices, while others could have marginal or even negative growth.
Once we near the end of a slowdown phase of the property cycle, the market stabilises.
Stage 3:
The 'Stabilisation' or 'Slump' phase
The stabilisation phase of the Australian Property Cycle is a relatively calm period when all the economic and social factors influencing the property market find a new balance.
During this phase is an excellent opportunity to purchase a property because prices are low. However, it can be hard to pinpoint this moment until it has already passed.
Experts look for signs like a reduction 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’.
Eventually, the market begins to move on. Although there may be fewer homes listed for sale, buyers will tentatively start coming back into the market. Falling interest rates, growing consumer confidence, and a steady economy all help set the stage for the shift into the final phase of the cycle – the recovery.
Stage 4:
The 'Recovery' phase
The final phase of the Australian Property Cycle is known as the recovery phase. At this point, prices have stabilised at an affordable level, and home buyers and savvy investors have begun to re-enter the market.
Interest rates are usually low during the recovery phase, and it’s often easier to get finance, so the number of buyers starts to increase. Builders and developers work on new projects in anticipation of selling during the next ‘boom’, and confidence in the property market begins to improve.
The gradual 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 yet again into the next phase: another property ‘boom’.
In the meantime, buyers can enjoy more affordable real estate as we wait for the market to move once more through its natural cycle.
How does the Australian property cycle affect me?
What are the common trends of the Australian Property Cycle?
Property cycles can be hard to predict, even for experts, because the factors influencing the phases are so complex. There are so many varying economic, social, and political influences that it's impossible to know when we will switch from one phase to another.
Hence, it is important to consider the nuances of your city's or state's property market rather than just following what's happening across Australia.
An experienced local property agent with in-depth knowledge of your region can provide market insights that are hard to find elsewhere. This is especially true in Tasmania, where the market often defies national trends.
If you're a potential buyer, you will most likely want to monitor mortgage rates closely and focus on saving for a decent deposit so that you can move quickly.
It is also essential to recognise that what is considered a 'low' in today's market was once considered a 'high'. This means it might be more important to focus on buying a property in a proven location than buying it during a particular phase of the Australian Property 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. If you purchased at the peak and your property price has dropped, our property history tells us it will increase again.
Whether you’re looking for your first home, your next home or an investment property, Tasmania’s reTasmania'srket makes it an excellent option for potential buyers and sellers alike.
It’s well worth seeking professional insight to make the most of current market conditions. To find out the potential value of your property in the current market, talk to us at Fall Real Estate to help determine the best course of action for you and your real estate goals.
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