The performance of Australian real estate continues to confound and confuse the pundits with news that the market’s entire value has once again broken the $10 trillion barrier.
What does that mean for you?
For owners, your faith in real estate as an investment has been rewarded with the latest data suggesting values have increased almost 5% in the past six months.
For upgraders, you’ll need to diligently search for a home of your dreams that remains within budget if the value trend continues. It may be wise to accelerate your plans.
First-time buyers are still challenged, as rising prices are accompanied by mortgage costs hovering around 6%; the highest since 2012. However, light may be at the end of the tunnel with predictions that 2024 will see interest rates return to normal levels.
Industry researcher CoreLogic reports the median home value is now $732,886. It says that from March through to August, the average value of a home rose 4.9% – wiping more than half the value lost in the 9.1% slump that began in April 2022 and ended in February.
Several factors are pushing prices higher.
Recovering from loss
Owners are still 4.2% underwater in terms of recovering from the recent slump. There’s every reason to believe we’ll return to peak prices in the next six months as interest rates come down in line with the nation’s inflation performance.
Inflation still critical
We need inflation to continue to edge back towards its target 2-3% range to be confident of 2024 rate cuts. Unexpected price spikes for items like petrol can adversely affect the chances of a rate drop. No one has the perfect crystal ball, so cautious optimism is a reasonable approach to the market.
Housing supply
The fall in homes for sale has helped sustain prices over the past few years. In the four weeks ending September 3, listings numbered 136,000, which is 23.4% lower than the five-year average. More owners preparing to move will help the market return to more typical behaviours.
New Australians
Net migration is influencing prices, according to CoreLogic. Our net migration is sitting at around five additional people per 1,000. In 2021-22, overseas migration contributed a net gain of 171,000 to the population, according to the Australian Bureau of Statistics (ABS).
Immediate future
Nothing is certain. Mortgage lending has fallen in three of the past four months, according to the ABS. The higher interest rate is intended to not only pull back property values but also take heat out of the economy and prevent a wage break-out. Job security has been an important support for home prices.
Your strategy
If you’re considering selling soon or buying your first property, maintain your research diligence. Good buying opportunities exist if you are flexible. Overall, the market continues to show resilience, and investing in real estate remains an excellent strategy to build wealth in the long term.
NOTE: The information in this article is general in nature and provided as a market overview only. Always consult your financial advisor or accountant for advice specific to your personal circumstances.