• What trends can we expect in real estate?

    What trends can we expect in real estate?

    Remember 1968?....The Beatles hit Number 1 in Australia with Hey Jude, a brand new Holden Kingswood cost $2780 and Rain Lover won the Melbourne Cup! …And can you imagine buying a home in Sydney for under $20,000?

    Well housing interest rates are now officially at their lowest since 1968 and whilst this is good news for Australian home buyers, it is worth understanding why this is the case.

    At present, we are experiencing low wage growth, employment growth and reducing general investment. As such, the Reserve Bank of Australia has adjusted down the base mortgage rate, which is intended to free up discretionary income, increase repayment capacity or borrowing ability and stimulate general economic consumption.

    This is good news for home buyers on a few levels. We can expect a less volatile housing cycle generally over the next short and medium term as any increase in the borrowing rate will most likely be modest and only likely to follow broader economic growth such as employment and wage growth.

    So it could be a great time to lock in a low interest rate in the knowledge that the cost of borrowing could be as low as it is ever going to get.

    Remember that the housing market activity is more reflective of the local supply and demand drivers that exist in each area, rather than simply the blanket interest rates alone.

    So what are some of the real estate trends we can expect to see over the next 12 months?

    For example, whilst there will be more apartment living as lifestyle choice, most CBD areas continue to provide a supply level that is ahead of demand and likely to be unchanged for the shorter term. Therefore, just because the cost of home borrowing has become lower, this will not translate to a growth in property values, despite the increased numbers of new people moving into these areas, until property supply aligns with demand.

    I think we will see continued rapid gentrification of inner suburban areas as owners seek to renovate and add value to existing properties, especially as the borrowing cost of doing so is reduced, but also as way of reducing commuter time, as roads and transport systems generally play catch up.

    Increased buyer affordability is likely to push the mortgage belt further to the fringes of capital cities as first and second time buyers capitalise on the interest rate relief.

    This will bring increased numbers to these segments of the home buyer market and competition ultimately will start to drive up property values in areas that have seen modest growth over recent years.

    Increasingly, employers are adopting more flexible working hours and this gives rise to the green-changers or sea-changers as a combination of tele-commuting, decentralised corporate hubs and flexitime policies that provide greater opportunity for work/life balance.

    Australians continue to look to regional areas with fast rail commutes of under 90 minutes and take advantage of their buying power compared to metropolitan areas.

    Separate to the shifting employment and work dynamic, the increased planning and development limitations within our urban areas, also continue to limit affordability within our existing capital cities.

    For example, whilst Sydney has decentralised high rise housing locations in the past, community opposition continues to slow multi-density and high-rise housing amenity. In the other capital cities, high-rise living continues to be contained to the CBD where supply typically exceeds demands. It seems that we have adopted a ‘yes-but not in my backyard’ approach to high rise and multi density living, which pushes the urban sprawl.

    Areas like the Sunshine Coast and Gold Coast in Queensland, Wollongong and Gosford in New South Wales, plus Geelong and Bendigo in Victoria are areas where workers have shifted from capital cities, yet can commute with arterial or public transport infrastructure available if needed, which underpins property values and growth in these areas.

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    About the author

    • Andrew Wilson

      Dr. Andrew Wilson, Senior Economist for Fairfax-owned Australian Property Monitors and Domain.com.au is our numbers man on The Great Australian Dream. As a leading commentator on the Australian property market, specialising in housing market analysis, Andrew has a strong following with weekly columns in the Sydney Morning Herald and Melbourne Age.

      Throughout the series, Andrew will help home buyers understand what the numbers really mean and reveal the forces driving the Australian property market whilst breaking down the jargon along the way. Dr Andrew Wilson has previously held senior property and construction research positions within industry, academia and government as well as holding a PhD and Masters in Research in Housing Market Economics.

      Andrew Wilson

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    This information is general in nature and has been prepared without taking your objectives, needs and overall financial situation into account. For this reason, you should consider the appropriateness of the information to your own circumstances and, if necessary, seek appropriate professional advice.