While investors should never rush, the current window is likely to reward early movers who can get out ahead of the market.
There are early signs the property market recovery is afoot – much sooner than many predicted. CoreLogic’s national Home Value Index posted the first month-on-month rise since April 2022, rising 0.6 per cent in March.
The rise comes as the Reserve Bank of Australia (RBA) provided borrowers with some much-needed reprieve, having pressed pause on record successive interest rate rises this month.
While further interest rate increases are anticipated, there’s light at the end of the tunnel, which serves to reduce uncertainty and bolster investor confidence.
Investors have been subdued in recent years, largely holding off throughout the COVID-19 boom and crowded out by frenzied activity in the owner-occupier space. However, subsequent rate rises and tougher economic times have forced many owner-occupiers out of the market, providing investors with an opportunity to capitalise ahead of the inevitable market rebound.
So, how should investors approach the market opportunity?
Mortgage stress is mounting, which could force numbers of property owners to sell. Getty
First, some historical perspective is useful. Astute investors need to understand the pattern of market cycles over the decades, so they can invest for the long term and not be undermined by short-termism.
Similar market recovery transitions have played out many times. For instance, in the period before the 2008 global financial crisis (GFC), the RBA implemented a series of rate rises, peaking at 7.25 per cent, as it tried to wrestle down strong inflation.
Just like we’ve seen in recent times, as mortgages became more expensive, housing prices softened, before plunging in the GFC’s immediate aftermath.
From mid-2007 to early-2009, property values fell more than 7 per cent over 13 months from peak to trough. The RBA cut rates quickly to contain the crisis, and by March 2009 the national property market was in positive territory, before surging 12 per cent to December 2009.
Australia faces differing economic circumstances, so we’re unlikely to see rates drop and prices surge as sharply in the short term.
The market rebound this time around is likely to be slow and steady, but will once again hush up the latest chorus of property doomsayers.
Advertised supply across capital city listings has been down, ending March almost 20 per cent below the previous five-year average, CoreLogic says. With clearance rates hovering about 60 per cent – 70 per cent, it shows there’s good demand for the stock that is available, which will continue to build, pushing prices higher.
As is typical with an aggressive cycle of interest rate increases, mortgage stress is mounting, which could force numbers of property owners to sell. While the mortgage cliff may be overhyped, it does provide investors with greater property volumes and choice – albeit definitely not a vulture-like smorgasbord.
Just like we’ve seen in recent times, as mortgages became more expensive, housing prices softened, before plunging in the GFC’s immediate aftermath.
On the other hand, government disincentives can inhibit a potential rebound – particularly relevant given murmurings the federal government has set its sights on restricting negative gearing, capital gains tax exemptions and borrowing within self-managed super funds.
Nevertheless, as well as steadying rates, there are other green shoot signals indicating greater market positivity and buoyancy ahead.
Advertised supply across capital city listings has been down, ending March almost 20 per cent below the previous five-year average, CoreLogic says. With clearance rates hovering about 60 per cent – 70 per cent, it shows there’s good demand for the stock that is available, which will continue to build, pushing prices higher.
Meanwhile, continued volatility playing out across global share markets makes a stabilising property market particularly attractive for bruised investors seeking greater surety within bricks and mortar.
With the RBA determined to lower inflation, it’s important to note property performance doesn’t rely on high inflation. There have been many periods of low inflation and sustained periods of growth.
Another strong positive is the soaring rental market, providing an appealing income stream for investors. That said, property investment decisions should remain primarily geared towards capital gains, the major wealth creator.
Remember, while understanding the shorter-term dynamics ahead is useful, it shouldn’t be applied too thickly, as to alter long-term perspective.
Short-termism, in whichever market direction, undermines sound and strategic investment principles that drive long-term success.
Source: financial review