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For the last two years property investors and home owners have been bombarded with negative headlines about the state of the market. We’ve all been led to believe that the market is down and out. That’s ignoring the fact that some individual markets across the country have fared better than the media-driven narrative focusing on Sydney and Melbourne.
The latest signs point to an environment where we are already starting to see evidence of a turnaround in property prices. It may well turn out that this recent downturn was the correction we needed to set the market up for the start of a new price cycle, which means now is the time to invest in property.
Positive sentiment has well and truly returned
With housing more affordable now than at the peak of the market, and interest rates at a record low, home buyers have had reason to step into the market. From a supply perspective however, stricter lending requirements brought about by the Royal Commission have acted as a handbrake.
National owner occupier mortgage activity is at its highest since 2012.
The government realised these regulations overstepped their mark. Home loan serviceability rules have been relaxed, freeing credit supply. We’ve also seen stimulatory measures like rate cuts, infrastructure investment, income tax cuts and stamp duty discounts. These have improved demand in the market.
While first home buyers were previously feeling the pinch, with renewed sentiment they are now helping drive the market. As shown below, their representation among national owner occupier mortgage activity is at its highest since 2012, well above the average from the last 10 years.
The weekly clearance rate for all of Australia’s capital cities has risen from 40% to more than 70%.
Although investor activity has yet to follow suit, the disparity between rental yields and loan rates remains at a historical low. As individual markets show consistent growth with each passing month, investor sentiment will also return and a further increase in lending activity is likely to emerge.
In the meantime however, the levers pulled by the government are stimulating the market. The weekly clearance rate for all of Australia’s capital cities has risen from 40% to more than 70% (Figure 2), with rates in Sydney even approaching 80%. This points to robust confidence and strength in the market.
Property prices have turned the corner
A supply-demand imbalance is underpinning higher clearance rates. On the one hand, auction volumes are rising, albeit still well below the highs of the last property cycle. However, there has been a strong lift in demand. Property search activity is up by as much as 25%, with buyers responding to stimulatory measures. This means increased competition at auction for desirable properties, which in turn is pushing prices higher.
Let’s take a look at data from October, shown below. From the ‘CoreLogic Home Value Index’ we’ve seen an increase in national dwelling values by 1.2% across October. With the exception of Perth, the trend was observed in every capital city. This gain was the largest monthly increase we have seen in over four years. More importantly, it was the fourth successive month where property prices have risen.
Melbourne and Sydney are leading the charge, with dwelling values up 5.5% and 5% over the last quarter.
Although Melbourne and Sydney are leading the charge, with dwelling values up 5.5% and 5% over the last quarter, the market’s resurgence extends further. The CoreLogic data includes 46 ‘sub-regions’ that sit under the various capital cities.
Each of these sub-regions are divisions of our capital and regional cities. They often capture different socioeconomic characteristics based on location. For example, the property market and dwelling prices for Inner East Melbourne fare differently to Mornington Peninsula, despite both being part of Melbourne.
Across the last 12 months, just seven sub-regions have seen property prices increase. But in the last three months, this number leaps to 38 sub-regions experiencing growth.
Melbourne property prices increased 2.3% last month, the best result in 10 years.
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Why it makes sense to invest now
With clearance rates and property prices on the rebound, we can take confidence that the worst of the cooling market is behind us. Data even points to an increase in the pace of the recovery, with Melbourne property prices increasing 2.3% last month, the best result in 10 years. This is precisely why investors should be making decisions now.
Even if we take a more conservative approach to forecasting, assuming gains of only 0.8-1% per month, property values may still lift 10-12% from today’s prices. Investors looking to take advantage of the recent downturn should recognise the early signs of a recovery and make the most of this opportunity.
Someone who procrastinates for another 12 months and holds off from investing in an average-priced property could end up paying $60,000 more. Not only would you forgo any potential capital growth, but you would also miss out on rental income as well. Now is the time to secure a suitable investment property, before fellow investors return to the market and drive prices even higher.
This information is provided by DPN Pty Ltd ABN: 94 630 700 186 Australian Credit Licence 514759. DPN Finance Pty Ltd is an authorised credit representative 504129 and related entity of DPN. Credit for Dream Big 100% Offset and Work Smart 100% Offset is provided by Adelaide Bank a division of Bendigo and Adelaide Bank Ltd, ABN 11 068 049 178 and Australian Credit Licence 237879.