Reading the property market can be a complex process, in this article we cover the basics to set you on the road to understanding the right time to invest.
- Understanding the stages of the property market cycle can help you confidently enter the market, grow your personal wealth and better prepare for the future.
- The property clock is a tool used by investors to understand the property market cycle and make smart decisions that achieve their property goals.
- The key for investors looking for capital growth is to jump in when the property clock points to the market being in an Investors Market stage.
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Many first time and uneducated investors sit on the fence when there is talk of downturns in the property market. And is it any wonder? With news headlines like, ‘Australia’s housing price drop expected to be the worst in the world’, ‘Australia to see world’s worst 2019 house price fall: report’, and ‘House of cards’ it’s enough to put anyone off.
Bad news sells, but in fact what the media is reporting is partly true. We are seeing downturns in some of our major capital cities and regional centres. And in my opinion, it was only a matter of time. Property values can’t stay on an upwards trend forever. Historically, we see that the property market is actually cyclical.
There are many factors that can impact property markets from combined improvement of job markets to an increase in migration. Yet there are people who are still investing in property, even amidst unpredictability and the threat of a downturn. What’s their secret? Can they predict the future?
The answer is no, they simply know how to read the property cycle better than most and aim to strike at the ideal buying time. They also understand the long-term view of property cyclic patterns. Prices rise, fall, stabilise and rise again.
You got to know when to hold ‘em, know when to fold ‘em – pick your time to buy, hold and sell.
The property clock
The ‘property clock’ is a tool used by investors to understand the property market cycle and make smart decisions that achieve their property goals.
The key for investors looking for capital growth is to jump in when the property clock points to the market being in an ‘Investors Market’ stage.
Let’s look at each phase, and how you can identify them.
#Investor tool: Heron and Todd White Property Clock www.htw.com.au/month-in-review
The rising market phase is characterised by more buyers looking for property than property available on the market. This creates a mismatch in supply and demand that forces prices up. A rising market phase is relatively easy to identify as you’ll see medium house prices increasing month on month due to this mismatch in supply and demand.
Approaching the peak
As the market approaches its peak you might start to see banks tightening lending policies, valuations may soften, housing affordability decreases, and properties stay on the market longer.
Peak of the market
The peak of the market is hard to pinpoint, it has many of the same characteristics as a market approaching its peak. Housing market growth may slow down further or stop completely. Increasing property values that aren’t in step with income growth mean buyers can’t service the loans needed to get into the market.
Starting to decline and decline
In a declining property market consumer confidence starts to lower, buyers tend to be cautious and take their time to purchase, vendors may discount to entice buyers to purchase and growth starts to decline. Vacancy rates may increase as residual stock sitting for sale on the market becomes vacant.
Approaching bottom of the market
When we’re approaching the bottom of the market, negative growth of the medium house prices starts to slow, vacancy rates start to stabilise, affordability is increased and sales activity gently rises.
Bottom of the market
Just like the peak, the absolute bottom of the market can be hard to pinpoint. Growth tends to stall through this period as the market stabilises. While it can be a good time to enter the market investors shouldn’t expect any growth in the short term.
Start of recovery
As the market starts to recover, vacancy rates tend to decrease month on month while the median house price* begins to increase. Investor confidence may start to improve and positive media articles become more frequent. Other signs that point to a recovery include increased sales activity, increased number of auctions, increased auction clearance rates, further falls in the vacancy rate and an increased number of sales.
While the media may be intent on spreading doom and gloom stories, you can always find signs that a market is indeed on the move.
Understanding the stages of the property market cycle can help you confidently enter the market, grow your personal wealth and better prepare for the future.
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