Prices in property markets, like in any other asset class or market, are not constant.
But with the assessment of historical price data and factors that influence market sentiments, it is possible to forecast where property prices will head correctly.
Having the knowledge and assessment of what affects property prices, means that as a property owner you’ll know when to put your property up for sale to fetch higher prices, or, as a buyer, when to acquire property on the cheap.
Australia’s property market is very dynamic to the point that some highly-rated experts and institutions in the field have gotten some of their predictions marginally wrong. It is, however, still very possible to get near-accurate predictions of property price forecasts on your own with the most relevant combination models.
The fundamentals that contribute to investor sentiment are a reliable basis for getting predictions right a lot of the time. Let’s take a more in-depth look at some of these factors to put you in the know.
The cash rate is the main factor in determining where property prices will head. Governments use the base lending rate set by the RBA, which is influenced by inflation and unemployment to balance the economy.
Because it affects a whole spectrum of the economy, the cash rate impacts both sellers and buyers in the real estate market. A higher base lending rate makes it expensive for investors to develop or purchase property, respectively. In contrast, a lower base lending rate is an incentive for sellers and buyers to borrow money more affordably.
The anticipation of a rate hike excites the market as buyers take out property loans before the expected rate increment comes into effect. This action causes a rise in demand and subsequently in property prices.
On the other hand, the projection of an impending significant rate cut in the wake of rising unemployment and inflation cause a slowdown in the market as buyers opt to sit out and wait for the slashing of the base lending rate before borrowing. Once the cash rate drops, the market begins to see a reversal due to rising demand.
Authorities use financial and real estate development regulations to sway the real estate market in a particular direction.
A confluence of low lending rates and favourable regulations for real estate development make it cheaper to build or renovate real estate.
However, buyers can only benefit from the available supply of property if restrictions imposed on lenders are equally favourable to them. Stringent restrictions imposed on lenders may lockout buyers out of from accessing finances, while the relaxation of restrictions becomes an incentive for buyers to take out more property loans.
A classic example of these two significant factors in action is the recent lowering of the base lending rate by the RBA and the relaxation of mortgage financing regulations by APRA that led to buyers flooding the market, effectively causing property prices to spike.
Auction prices are a valuable source of gauging current investor sentiment. Being that property listings in auctions are usually of high value, buyers will be willing to meet or even surpass sellers’ valuations of their properties in a sellers’ market. In exchange for offering buyers value properties, sellers get the reward of higher prices in comparison to those in the retail market.
In gauging how favourable the market is for you at present, you’ll want to check on auction listing volumes against their clearance rates.
Low volumes of properties scheduled for auction with corresponding high clearance rates point to a vibrant sellers’ market that attracts high property prices. High listing volumes with low clearance rates are characteristic of a slowdown in demand for real estate and an opportunity for buyers to acquire properties more affordably.
Private Treaty Property Listings
Real estate listings are a crucial indicator in calculating whether a property market is underpriced, overpriced, or reasonably priced. With most property for sale or rent put up online these days, these listings are a rich source of data that will help you to analyse whether to buy or sell the property at current rates or wait.
If you determine that a particular property market is underpriced, as a buyer, you’ll benefit from purchasing the property, but as a seller, it would be best to wait for prices to rebound. On the flipside, overpriced properties in a property boom point to a future downturn and overall reduction in rates.
These factors and indicators are some of the most suitable in assessing price development in the real estate market. As we mentioned earlier, the accuracy of your forecasts will depend on the combination of metrics you use in your assessments.