Take a punt or wait?

So much is being said and written about the behaviour of the real estate market and there is little doubt Australians find it intriguing.

When the market is soaring we are all talking about the increased equity in our homes and/or housing affordability.

When it is declining, the chatter is about how far it will drop and whether it’s better to get out while the going is good.

But property trends are subject to cyclical changes which can be measured in shorter- or longer-term time periods.

To give some context, the median hold period for homes sold over the past 12 months was nine years. Over the past 30 years we have seen six distinct cycles of growth and decline. So, in other words, on average the hold period for home ownership is around twice as long as the average cycle, which are driven by changes in taxation policy, monetary policy decisions, economic shocks, fiscal stimulus and broader economic conditions.

Despite cycles presenting peaks and troughs in values, the long-term trend has definitely been positive growth, with dwelling values overall having increased annually on average by 5.4% over the past 30 years.

As they say, “time in the market is more important than timing in the market”.

With property being a major financial asset for most Australians, it’s no wonder that they ride the waves of the ups and downs of the real estate cycle. However, unless you have bought close to the peak of the market and then must sell during the ensuing period of decline, you are unlikely to be financially worse off in the longer term. The material worth of a property is only relevant if it is liquidated, otherwise it is counted as an asset or liability for borrowing or credit purposes for example.

Although from year to year only 4-6% of properties are transacted, Australians have a fascination with the machinations of the property market. Trying to forecast the top or bottom of the market, particularly for those speculating and trading in real estate for financial gain, is equally obsessive for some as it is unreliable. It is clear though that the longer-term trends are more predictable than short-term cycle.

The most likely scenario from here is that the current decline will eventually level out, followed by a period of stability then further growth.

For now, a strong economy and a super low unemployment rate are helping to protect the market from a steep decline and ensuing crisis for those on the brink. Properties are still selling well as sellers are readjusting to current market conditions.

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Published August 31, 2022

By Belinda Cassano