At Lands Real Estate, we believe that all buyers should be informed buyers. Armed with current knowledge on the state of the market, you will be in prime position to make wise choices when it comes to either purchasing or selling property. With this in mind, we are pleased to present the first of our State of the Market Quarter Reviews.
The real estate market cycle
The real estate market traditionally follows a flowing cycle – it broadly flows from trough to peak over time, with periods of correction, recovery and expansion – with a generally upwards trend that is essential to the functioning of the overall economy.
When housing prices are at their peak, a correction follows as demand is not able to meet the cost of supply, which leads to a pricing trough. Then as buyers snap up housing at lower prices, the market enters a recovery phase, followed by a price expansion towards the next peak. This cycle is continuous and ongoing across time.
The current market
Overall, Adelaide house prices are coming out of a recovery from the previous trough in July 2012 into the next expansion phase, although the growth has been modest, with a “flattening” of growth at only 0.2% in the October quarter last year. In spite of this however, the full year growth in 2014 was solid at 3.5% overall and this growth is expected to continue at a stately pace towards the next expansion phase throughout 2015.
The biggest growth has been seen in the prestige price range ($860k+), with a full-year growth in 2014 of 13.9%, compared to the middle price range ($450k – $850k) of 5.3% and budget price range (<$450k) of 4.0%. In terms of the market cycle, the prestige-range prices are already well into the expansion phase, with the middle- and budget-range prices still emerging from recovery. Put simply, the more expensive house prices are rising faster than the cheaper prices.
The three buyer types in the market are first home buyers, investment buyers and changeover buyers – existing home owners who are selling their old home and buying a new one.
Last year changeover buyers represented the majority of home buyers at 53.6%, compared to investors at 38.6% and first home buyers at only 7.9%. Whilst the number of changeover and investment buyers increased by 7.5% and 6.6% respectively, first home buyers dropped by 4.8%. This drop is due to changes in the government’s first home owners incentive grant scheme, essentially meaning that those who formerly could have afforded to buy a home with government assistance have now not been able to. Whereas changeover buyers have been able to leverage against the equity in their existing homes, and investors have taken advantage of high yields on sales and low vacancy rates in purchased property.
There is a demonstrable correlation between interest rates and housing prices. In the broadest possible terms, as interest rates fall, housing prices increase, and vice versa. True to this, whilst the interest rate was at an eight-year low at the end of 2014 at only 2.5%, median house price was at an eight-year high of $463,950.
With the RBA likely to declare another interest rate cut in mid-2015, this will support the expansion cycle of housing prices and stimulate further growth in the market.
If we break the market down into the broad areas of Adelaide Metro North, Metro South, Metro East and Metro West, we see growth consistent with the price ranges represented.
Adelaide Metro East has seen the most significant growth with a full year growth in 2014 of 8.9%, compared to 4.4% for Metro South, 3.3% for Metro West and 1.6% for Metro North. Adelaide Metro East housing prices are already well into the expansion phase, with Metro South, West and North still coming out of recovery. Also in line with the October quarter “flattening” mentioned above, the October quarter saw 2.6% growth for Metro East, with no growth for Metro North and South, and a negative growth of 0.9% for Metro West.
However the full year and five-year growth figures still reflect the recovery from the trough of July 2012, albeit with modest expansion in prices. It is forecasted that 2015 will see growth at 1% for Metro North, 3% for Metro West and South, and 4% for Metro East.
Although growth was down in the October quarter from late 2013 and early 2014 figures, the market is expected to remain steady. Changeover buyers in the middle to upper price ranges will remain the key growth drivers for 2015, and although the growth has been moderate, prices are still increasing in line with the cycle.
Though growth is modest at present, the market will remain steady and follow the course of the cycle, buoyed by an expected interest rate cut and changeover buyers leveraging their existing investments.
Now is a good time to consider buying property in the North; as price expansion has not yet hit full stride, you are likely to yield a good long-term return on your investment as price catches up to the other regions.
Source: Australian housing markets report by Domain (domain.com.au)