The housing market doesn’t always go up. So ‘should I sell my property?’ is the question many people are asking, particularly in Sydney and Melbourne where property prices have stabilised following unprecedented growth over most of 2015.
Here are several reasons why now may be a good time to sell.
The end of the housing shortage
A lot of the price growth in the Melbourne and Sydney property markets has been caused by strong population growth combined with an inadequate number of dwellings. This increased demand for housing - and not enough homes to accommodate everyone - pushed prices upwards, particularly in areas close to transport and infrastructure.
However, the population is no longer growing quite so fast. In the year to March 2015, the Australian Bureau of Statistics reported that Australia saw the slowest rate of population growth in almost a decade. Meanwhile, you only need look at the skylines of Sydney or Melbourne’s suburbs to see how many new dwellings have been built.
Many suggest that we’ll more likely see a housing oversupply over the coming years rather than undersupply - particularly of units.
Interest rates to rise?
Another factor driving rising property prices has been historically low interest rates: with the RBA keeping official interest rates at just two percent since February 2015. This compares to a rate of 7.25% in early 2008 and an historical average of just over five per cent.
But interest rates can’t stay this low forever.
Because money has been so cheap, Australians have been borrowing a lot of it - so much so that the Australian Prudential Regulation Authority (APRA) has asked the banks to stop lending so freely. The banks increased both interest rates and loan to value ratios (LVRs) for investor loans earlier in 2015. Then, in October 2015, Westpac led the way by increasing interest rates for owner occupiers.
As interest rates rise, buyers’ purchasing power falls. And with that, any growth in house prices falls too.
One factor that drives price growth of any kind - whether that’s in property markets, stock markets or money markets - is confidence. People want to be optimistic about the future and know that the good times will roll on before they commit their live savings.
You only have to have a passing interest in the news to know that many are no longer confident in Australia’s short-term economic future.
Goldman Sachs has suggested that Australia has a one in three chance of falling into recession over 2016: not least because the economy of China, our leading trading partner, is wobbling. Meanwhile, commodity prices have tanked (Australia derives much of its export income from exporting coal, iron ore and other resources) and business investment is falling.
Worst of all, when confidence falls, businesses stop hiring. When businesses stop hiring unemployment rises. And without a job, a lot of people either can’t get a loan or can’t meet their mortgage repayments.
Again, you don’t have to think too hard to figure out what effect that has on property prices.
Clearance rates down… but not yet out
Auction clearance rates are often used as a barometer for the health of the property market because there tends to be a strong correlation between clearance rates and price growth. And auction rates are falling.
In Sydney they’ve come down from a peak of more than 90 percent in April 2015 to 65 percent in October 2015. Nationally, they’ve fallen from over 80 percent to around 70 percent.
That sounds bad and obviously things aren’t as rosy as they once were. But it’s not yet dire...
Historically, house prices fall when the clearance rates dips to around 50%, so there’s still a long way to go before any fall.
But what the numbers do suggest is that prices have plateaued and they could go one of two ways from here.
So, depending on your outlook, now may be the perfect time to sell.
Visit Agent Select to find out more.
Agent Select is a free and independent service that helps consumers select the best performing real estate agent, and negotiate the best terms to sell their property, anywhere in Australia. Agent Select’s three step process provides you with a property report, compares sales proposals from three local agents in a customised Agent Comparison Report, and gives you complete freedom to appoint your chosen agent to sell your property with confidence. Find out more at AgentSelect.com.au or call 1300 040 463.