Is it a good time to get into the real estate market in 2019 or should you hold off for better conditions? To forecast the year to come, it’s important to look at the past and how the market responded in similar conditions in the past.
The year that was, reflected a changing of the guard. At the start of 2018 we witnessed the property market switch from a buyer’s market to a seller’s market.
‘Prices have taken a small tumble in a market that seems to be unstoppable.’
This means property buyers had more choice and value when buying property. Good quality real estate still attracted high prices and competition, but didn’t over exceed true market value.
This story was reflected by the auction clearance rates. They dropped to around 20%, hovering around the 50% mark. The choice method of sale by real estate was by private negotiation.
My buyer’s agency found higher quality properties were not affected by a lack of buyers or competition. On the other hand, poor quality listings struggled to sell without a slight price reduction.
So will the property market crash in 2019?
Putting it simply, defiantly not. There are many economic fundamentals that are supporting a strong real estate market. Australian property market relies on many contributing factors to make it strong:
- Victoria has recorded the fastest growing population in Australia.
- Melbourne real estate is more affordable than Sydney.
- Melbourne has Australia’s lowest unemployment rate.
- State & federal government has a record level of investment in major infrastructure projects.
- Low interest rates.
- Strong local economy that is in surplus.
- Low rental vacancy rates.
- Banks have tightened lending practices, making it harder to borrow.
We had a
similar slowdown in property prices which was brought on from global
influences, particularly the USA and the Global Financial Crisis.
This worried many investors as the media was reporting the end of the good-days and property prices in Australia dropped approximately 10% to 15%. The whole decline was followed by a sideways market, very similar to 2018.
The whole process lasted approximately 5 to 6 years with prices recovering and seeing a 30% to 40% increase since.
A cooling real estate market creates a safe future.
A slower market makes everyone behave correctly:
- Lenders need to be wiser about the loans they’re writing as they can not hand out money to risky borrowers.
- Property sellers need to make sure their houses are up to scratch to achieve a good price.
- Property buyers get better value for their money.
- Real estate agents need to do some hard work for a sale.
Why is the property market cooling?
Over the last 3 years, the government has put a lot of pressure around responsible lending. My clients have discovered banks are going into greater detail to verify their financial positions, making sure they have legitimate savings and loan affordability.
As a result, homebuyers and investors are finding it difficult to borrow money from all the major banks.
There has been a noticeable drop in investors taking out mortgages and as result there has been less completion in the property market.
The fear of a new government effects many markets across Australia. Investors are worried about new governing policy changing the normal order for the purpose of fixing or improving issues.
The most noticeable current issue comes with the rising of property prices. Real estate affordability has become a major problem. New governments are looking at getting rid of negative gearing to cool real estate markets further. Hence investors are holding back to see who wins the next election prior to acting.
Change In First Home Buyers
With the median house price hovering over $800,000 in Melbourne, the humble first homebuyer still has an affordability issue if they want to purchase in metro Melbourne. First homebuyers are making moves to regional parts of Victoria with property prices booming in places like Geelong and Melton.
2019, The Year Of The Landlord.
Less investment in property will reduce the number of available rentals to the market, hence increasing the demand for rental properties, pushing up rental rates.
more dollars in the landlords pockets and better quality tenants that will
consider longer-term leases.
Victoria is still the fastest growing state in Australia, by population, that needs to house all it’s new occupiers.
Property Prices 2019.
The property investor will be rewarded with:
- Slightly cheaper purchase prices than 2018.
- Less competition from buyers.
- Increasing rental yields
- More choice / variety in property stock.
- Better tenants.
- First homebuyers will be active in regional hubs like Geelong rather than Melbourne.
A reality of real estate in Melbourne is that prices always seem to be going up. Property buyers fall into the trap of following the Jones’ and only buying when everyone else is buying.
When the market slows down, the media goes into over-drive on reporting a housing crash and buyers have a genuine fear of getting into the market.
But this is how the brave reap the best fruits. The most successful investors
‘ Buy with the market is selling and sell when the market is buying.’ – Warren Buffet.
It’s Natural For The Market To Move In Cycles.
Having rational property prices that auto-correct themselves keeps us safe from economic disaster. Things like real estate bubbles and high inflation rates are unheard off.
Even if a new government comes in and makes changes to negative gearing and prices fall further, remember the people who make the most money in the real estate investing game are long-term property holders that own good quality real estate.
My personal belief is, as long as Australia is a great place to live and work, property will always be the best way to invest for the long term.
Ref: Mark Ribarsky. Melbourne Property Market Forecast 2019. Retrieved from https://wiserealestateadvice.com.au/melbourne-property-market-forecast/