Real estate has always been a favourite topic of conversation around the dinner table or at coffee catch ups. With so much property noise out there now, these discussions have become even more intense.
Wherever you are in the property cycle, you should know one thing: real estate changes invariably occur. Median values in different areas, including rental yields and vacancies, will move up and down.
In short: if you own, or plan to buy, property, expect adjustments and corrections.
Cotality data shows that the combined capital cities market experienced 10 downturns in the past 40 years. In their May Housing Chart Pack, research director Tim Lawless also highlighted that in this time, all but three capital city declines lasted less than a year. In addition, these dips followed notable increases, which provided a strong buffer against the deteriorations.
This is exactly what we’re seeing now, and it means that despite the recent national flatline, we can breathe a little easy. This is especially true of our mid-range cities.
Cotality’s latest Home Value Index show Brisbane, Perth and Adelaide’s median values are still at their peak, having experienced 75% to 90% growth in the past five years.
As a result, Mr Lawless noted that most home owners are in a relatively strong equity position, with the Reserve Bank of Australia estimating that less than 1% of households were in negative equity at the start of this year.
That being said, Mr Lawless pointed out that newer buyers could be at risk of negative equity as property values fall, especially those who bought via first-home buyer government schemes requiring small deposits.
But as I said in a recent interview, I do have some good news for this group. Generally speaking, they won’t sell again for another seven years – the typical period of our property cycle rebounds – and by that time, values will have doubled again.
Unfortunately, however, NSW and Victoria prices have already declined by 10% to 15% in March alone. I expect we’ll wait at least a year before we see any positive movements in the market too.
Our economy is in challenging, unstable times and many people are struggling. But economising in this downturn can be easier than people might think and might not even require a full budget cut back.
