Should homeowners worry about negative property forecasts?
A glance at property forecasts can make you worry about the value of your property decreasing in price or delay you from further progressing your property portfolio. But do you actually have anything to be concerned about or is this just how the property market works?
In this article, we’ll answer those questions, and provide some context around property forecasts giving you a new perspective on the
current market position.
So where does the property market stand?
Headlines have predicted a ‘housing market correction’ is on the cards. But what does this actually mean for homeowners? We’ve seen huge hikes in prices of property, however, trends are pointing towards a slight softening of the market. There are a variety of factors at play within this correction, the main culprits being rising interest rates, reduced consumer confidence and increase in the cost of living. In particular, rapidly rising interest rates have a lot of power in terms of predicting the trajectory of the property market. Think of it as the first domino. As potential buyers see interest rates increase they lose confidence in the market and may have to prioritise other aspects of their lifestyle with the cost of living also amplifying.
A different perspective on market drops
Whilst this might feel doom and gloom to property owners, such as yourself, context is vitally important to understand. Not all dips are wholly negative. A recent index by PropTrack recorded the first drop in national growth since March 2020. Nationally house prices have increased 35% since that time, with a 14% growth during this year alone. So when we look at the decreases in average home value, even those predicted by the banks, we wouldn’t see drops that would take the market back to pre-pandemic levels.
What’s more, it’s undeniable that the boom in home prices was at an unsustainable level of growth. If you were interested in building a
portfolio, flipping a home or purchasing another property for rental purposes, a continued rise in prices would stifle or slow your
progress. The forecasted drop will increase consumer confidence in the long term and create a more sustainable property market.
What about interest rates?
RBA governor Philip Lowe has indicated an inflation rate of about 7% is expected this year. Although he has claimed that he will “do what is necessary” to bring it back within the 2% to 3% range, this indicates continued hikes in interest rates, which, in conjunction with increased mortgage stress and reduced consumer spending could see a drop in house prices.
In reality, however, it's not quite as dismal as expected. Nicola McDougall (chair of the Property Investment Professionals of Australia) said, “The RBA has indicated that it expects high inflation to be a temporary situation, rather than a permanent one…most major banks appear to be pricing in a maximum interest rate of around 5% to 6% within two years, which is still relatively low compared to historical averages.” So although the interest rate issue may seem overwhelming, it’s likely to be a temporary fix rather than a longstanding problem.
Demand will continue to grow
The great news for any homeowners is that demand will continue to grow. With the pandemic reaching management stages, we’re seeing a resurgence of overseas buyers looking for property in burgeoning new neighbourhoods. And the same goes for rental properties - there is a very high demand for tenancies, making it a great opportunity for those with a property portfolio to make the most out of their investments.
So should you worry about negative property forecasts?
As a property owner, it’s natural to worry about changes in the market. However, when looking at the bigger picture, the negative property forecasts are not quite as negative as they may seem. Ultimately after a period of incredible growth in the property market, it was due a dip to rebalance and reset the stakes somewhat. Keep in mind that property market volatility is part of the game - knowing how to plan for this is essential to continued success in property purchasing.
If you are seeking strategic advice on how to best plan for what's to come or you want to continue purchasing more property but are stuck on what's next given the market conditions, get in touch with our expert property advice team or mortgage strategy team today on 1300 001 215.