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- preface
- Is it accurate to double Australian property in 7-10 years?
- The impact of the epidemic on the current housing market
- Will the "myth" of the Australian housing market be shattered?
- epilogue
There has always been a saying in the Australian property industry that Australian house prices will double every 7-10 years!
Many investors who buy houses in Australia are interested in the "doubling" characteristics of Australian real estate.
Today's boom in the Australian property market has made the traditional dream of ordinary people owning a house more and more unattainable.
Today we take a closer look at the areas where the median selling price has doubled over the past decade to verify that this "doubling in 7-10 years" claim is true.
Let's look at the data from the last property cycle.
In 2006, the median price of single-family houses in Australia was about $330,000, and the median price of apartments was about $310,000.
Ten years later, in 2016 the median sale price of single-family houses across Australia was $499,000 and the median sale price of apartments was $445,000.
From this point of view, the sale price of single-family homes across Australia has increased by only 51% in a decade; the sale price of condominiums has increased by 44%.
It's clear that the median property sales in most parts of Australia have not doubled in the last decade if you look at the average property sale prices across Australia.
If you look at the major capital cities, the average price of property sales has grown very differently in the past decade, but no capital city has actually doubled the median sale price in the past decade.
Property sale price growth in Sydney, Melbourne and Darwin has nearly doubled over the past decade, but in the cities of Perth and Hobart, the total change in the sale price of single-family homes and apartments is well below 50%.
The table above shows the distribution of whether the median selling price has doubled across Australian states over the past decade.
Among them, single-family homes in New South Wales, Victoria and the Northern Territory have doubled in sale prices in more than 10% of their areas over a ten-year period.
Condominium sale prices have doubled in the last decade only in New South Wales, Victoria and the Northern Territory, where the rate is also around 10 per cent.
Tasmania, on the other hand, has not had any region that has doubled its selling price growth in a decade.
So, the idea that property prices double every 7 to 10 years does come to fruition in some areas, but there's no 100% certainty that it applies to all situations.
This also highlights the importance of timing and strategy in the purchase of property!
Real estate is a long-term investment, not to buy now, in two years can be sold immediately profitable.
The impact of COVID-19 in the current property cycle!
Let's look at the current property cycle. In the past two years, the COVID-19 pandemic has affected the Australian housing market in many ways.
At the start of the pandemic, first-time buyers accounted for a large portion of housing demand. After an earlier recession, the group of buyers took advantage of record-low mortgage rates and government incentives to select affordable housing.
Australian Bureau of Statistics (ABS) data shows that the number of new loans for first-time homebuyers increased during the downturn in the property market from 2017 to 2019.
Beginning in June 2020, first-time home buyer activity surged with the launch of the HomeBuilder program, which is used in conjunction with the First Home Loan Deposit Program and other state government grants and stamp duty incentives for first-time home buyers.
The result was a surge in first-time home buyer activity, peaking in January 2021.
Since its peak in January 2021, first-time buyer activity has decreased, reflecting higher barriers to entry as home prices significantly exceed income.
As of January 2022, 10,964 loans were issued to first-time home buyers, above the ten-year average of 8,682. Proportionally, first-home loans accounted for 24 percent of owner-occupier mortgage demand in January, in line with the ten-year average.
Demand has driven up house prices.
Migration trends for 2020 and 2021 show an increase in the number of people leaving cities for areas outside the lockdown period.
Interstate immigration drives housing demand, and it just so happens that the number of listings in remote parts of Australia is unusually low, both in the sales market and in the rental market.
Since March 2020, house prices in Australia's suburban areas have grown by almost 40%, while the value of homes in capital cities has increased by about 21%.
Areas where lifestyles have been very popular over the past two years, areas such as the Sunshine Coast, Illawarra and Gold Coast have created new million dollar markets where the median price of homes now exceeds the million mark.
The CoreLogic Rental Value Index also soared to record highs.
While rents declined modestly by -0.8% between March 2020 and August 2020, these values picked up quickly and subsequently soared in 2021.
Rent increases can be caused by a variety of reasons.
Between 2017 and mid-2020, investor activity was relatively sluggish, resulting in limited leasing supply.
The rise of rental services such as Airbnb may also have weakened the supply of the rental market, allowing landlords to turn to the short-term rental accommodation market, which has risen in some parts of Australia due to the growth of local tourism in the past two years.
For investors who have recently purchased long-term rentals, rents may rise due to higher purchase prices.
During 2021, annual rental value growth was at its highest level since 2008.
Across Australia, the median advertising rent has increased from $30 per week to $470 per week since March 2020.
During the pandemic, rent preferences have shifted significantly to less dense housing markets, where rent upward pressure is even greater.
This trend has developed over the past year, with rent affordability gradually shifting more demand towards the high-density condominium market with more affordable rental costs!
The global pandemic has catalyzed significant changes in the Australian property market.
From the Australian border to the lockdowns in major cities to the central bank's unprecedented water release stimulus measures, it has had a huge impact on home buyers during the epidemic.
Australian house prices have risen by 25% in 2 years, a record high!
Although home prices fell at the beginning of the pandemic, overall house prices rose by 24.6% between the end of March 2020 and February 2022.
Among them, the impact of the imbalance between supply and demand in the market is deepening.
Between April 2020 and September 2020, prices across Australia fell by -2.1 per cent before soaring amid low interest rates, high household savings, government subsidies and a sharp decline in housing supply.
By February 2022, the total value of residential property in Australia has increased from $7.2 trillion at the beginning of the pandemic to $9.8 trillion.
The median Australian residential value increased by $173,805 to $728,034.
Experts say that people who buy a house during the pandemic are more likely to double their home prices in the next 10 years than those who buy it now!
Because the market is facing a long period of downturn, and then entering a period of slow recovery.
Shane Oliver, chief economist at AMP Capital, said the sharp rise in house prices over the past two years, combined with the central bank's interest rate hikes, will make it difficult for house prices to double again in a decade, meaning investors will need to wait more than 7-10 years before house prices can be expected to double.
"If you buy a house during the pandemic, or when the last growth cycle peaked, in 2017, you've seen a sharp rise in house prices, so even if this time the property goes into a downturn with a 10% price correction, your house is expected to double in 10 years."
"But if you've only recently bought it, it's a bit difficult because you're starting at a much higher starting point and the price is 25 percent higher than the pandemic low." When you buy at a high level, it takes longer to double the price. ”
Tim Lawless, head of research at CoreLogic, said it's rare for house prices to double in a growth cycle.
Ray White chief economist Nerida Conisbee also believes that current Sydney buyers in particular are unlikely to see a doubling of value over the next decade due to slower growth.
"We know that we may experience at least 12 months of price growth plateau, so it may be unlikely to double your money now, if you buy in April 2020, so timing is a big factor."
Mr. Tim Lawless agrees.
"In the last housing growth cycle from early 2012 to mid-2017, Sydney house prices rose by around 75 per cent, but it wasn't until August last year that Sydney house prices recorded at least 100 per cent growth."
Therefore, if you want to make a short-term profit, in addition to some luck, you also need to seize the right cycle timing at the right time!
Finally, let's talk about the Australian housing bubble.
Every time it is mentioned that Australian house prices will rise, there will be a large number of people in the comment area saying that the property market is about to collapse and the property market is going to end!
In fact, reports of a property bubble in Australia have not stopped over the past 20 years, and since 2004, there have been reports of high house prices in Australia.
After 2008, Australia's real estate blasting theory continued, and some experts believed that the real estate bubble would not only burst, but also affect major banks and finally drag down the economy.
In the past two years, some people have used terrible words such as "massacre" to describe the imminent disaster of Australian real estate.
But when the housing market peaked in the last cycle in 2017 and then in 2020, in the 3 years from now, Australian house prices have only adjusted by about 10%!
It didn't even fall back to where it started the last property cycle, and then it started bouncing back.
Whether there is a bubble in the real estate is a matter of opinion, and some people say that only after the bubble bursts can it be concluded that the bubble once existed.
Looking at house prices from an optimistic point of view, the fluctuation of asset prices is a normal phenomenon, in the free market, asset prices are inevitably pushed up because of overheating of investment, and finally asset prices will be adjusted due to oversupply.
If asset prices fall gradually over a long period of time, people call it a price adjustment, and if it is significantly lowered in the short term, experts call it bubble bursting.
Instead of taking the time to analyze whether a bubble exists or predict when it bursts, it is better to make more money early and always make sure that you have enough money to deal with sudden disasters, which is more advantageous than analyzing economic bubbles.
Disclaimer: The Company strives to be objective and fair in the content of the report, but the views, conclusions and recommendations contained in this report are for informational purposes only and do not constitute the buying and selling prices of the securities described and do not at any time constitute private investment advice to clients. Neither the Company nor the author shall be liable for any consequences arising out of the basis or use of this report.
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