If you’re in the market to find the right loan, understanding when the property market is hitting its peak can be crucial – particularly if you’re an investor.
And it doesn’t necessarily involve spending thousands of dollars on market research. Nor does it involve gazing into a crystal ball in a dark, overwhelmingly scented room. All it takes is keeping an eye on what figures and reports are saying.
Here are three tell-tale signs that the property market might have hit its peak:
Now, this one is a little obvious. When the property market is hitting its stride, demand for housing will be on the rise, pushing up home prices. One look at Australia’s property industry, and you’ll see this in motion. CoreLogic RP Data’s September quarterly review showed that when the market was soaring, dwelling values in Sydney and Melbourne respectively jumped by 5.4 and 6.1 per cent over the July 2015 quarter.
You can observe a market that has hit its peak or is very close to it, by the same principle. Eventually, dwelling value growth will slow, before ceasing altogether. As prices begin to stagnate, how long before they start to decline (if at all) can vary wildly depending on economic conditions. CoreLogic’s monthly indices show that dwelling values in Australia’s biggest housing markets showed signs of easing months after price growth had begun to slow down considerably. Over November 2015, the average value of dwellings in Sydney and Melbourne respectively dropped by 1.37 per cent and 3.45 per cent.
The proportion of homes that sell under the hammer can also act as a key indicator. A November 16 CoreLogic release from 2015 revealed that after a strong period of auction clearance rates that consistently hit percentages of high 70s to low 80s, activity slowed down quite a bit.
The capital cities’ weighted average clearance rate in the week ending November 8 2015 was 61.4 per cent. In Sydney, this figure was 58.4 per cent. Considering that this city was clearing upwards of 80 per cent in the midst of winter (traditionally the slowest season for the property industry), it speaks volumes of a peaking market.
There could be several reasons for more homes not being cleared through auction. Fewer home buyers showing up at auctions mean less competition, which could easily lead to sluggish bidding. Simultaneously, home vendors could have set the reserve price relatively high, unaware that demand is abating. As these sellers realise that people are less willing to now fork out such a sizeable home loan, they will start pulling down reserves or begin negotiating with buyers and offer a lower price.
Unsold stock from spring will also contribute to this volume. This is another sign that momentum is slowing in the property market as it reaches its peak.
Whenever there is potential to reap great returns, investors will be there. A property market that is curving upwards sparkles like a chest of dragon’s gold for this group of buyers. QBE’s Australian Housing Outlook report for 2015-2018 showed that investments made up half of all residential finance.
However, figures from the Australian Bureau of Statistics show that in the September quarter of 2015, investment home loans dropped in (seasonally adjusted) value by 8.5 per cent. This is around the same time when the market showed begun showing signs of slowing, revealing the correlation. While there are many reasons to declining investor activity such as government restrictions and economic conditions, the relationship is there nonetheless.