If you are considering purchasing or selling property, knowing where your area currently sits in the property market cycle is invaluable.
Property fundamentals vs. the property cycle
Understanding the property fundamentals affecting supply and demand in a specific area is essential for long-term gain. Some of the key criteria include:
- infrastructure and future infrastructure commitments
- proximity and type of employment opportunities
- new development construction and commitments
- affordability (price vs. income)
- proximity to good facilities (schools, hospitals, shopping, lifestyle and entertainment options)
- planning restrictions and zoning
However, whether selling or buying, you should keep in mind where the area is in its market cycle, as this can have a significant influence on the short- to medium-term profitability of your investment. It can also affect your current equity and borrowing capacity, even if you are planning on keeping the property over the long term.
What factors influence the property cycle?
- Market sentiment. Some buyers get overly optimistic when prices have been increasing, forgetting that once the market peaks, it will start heading down again. Conversely, buyers can become overly pessimistic when the market slumps, whereas this is when they should be starting to look for opportunities. Market sentiment can change very quickly, so property owners need to be prepared for the next stage in the cycle as it can move at any time.
- Interest rates, credit availability and business confidence are also key influencers of the position in the cycle. While we currently have low interest rates, which can encourage demand and lift prices, we are also experiencing significantly reduced availability of credit and relatively low business confidence, which is keeping demand and price growth at reduced levels.
- How closely supply matches demand. Too much supply has a slowing effect on the market, whereas too little supply can push prices up.
Of course, the many different markets around the country are moving at their own pace. This is the Herron Todd White Property Clock as at March 2019. You can download the full report at here.