Australian property prices continue to rise over March, with CoreLogic’s home value index up by 0.7% month-on-month.
This rise was driven by stronger conditions in Brisbane, Adelaide, Perth and the ACT, along with several regional areas, offsetting a slip in values across Sydney and Melbourne.
As a result, big differences are opening up between different areas in the country – with different suburbs, regions and cities all at different phases of their property market cycle.
What’s a property market cycle?
Just as with the economy, real estate is cyclical and often follows this four-stage cycle:
- Boom – when prices typically increase at a rapid rate as buyer demand outstrips supply
- Downturn – when prices begin moderating before falling as supply catches up with or exceeds demand
- Stagnation – when prices are flat as the market stabilises
- Upturn – when prices start rising again
There’s more than one property cycle in Australia
At its simplest, a property cycle revolves around two factors: supply and demand. When demand outweighs supply, property prices rise; when supply outweighs demand, prices fall.
Of course, it’s a bit more complicated than that.
For one thing, there isn’t ‘one’ Australian property market. Every suburb is a unique property market, which means every suburb has its own cycle. These suburbs can be further segmented into property type (e.g. house or unit) and price point (e.g. prestige and entry-level).
Take NSW, for example. The Sydney CBD unit market was hit hard during covid-19 lockdowns, while lifestyle and prestige property values soared in regional locations such as the Central Coast and Bryon Bay.
Factors influencing property market cycles
Some of the factors driving the property cycle are:
- Interest rates– Falling interest rates can increase demand for property, while rising rates can have the opposite effect
- The economy – A stronger economy can encourage spending on consumer good and assets such as property, while a weaker economy can have the opposite effect
- Government policies – Property incentives can boost demand when they’re introduced and decrease demand when they’re terminated
- Population growth – A growing population increases demand
- New housing – The greater the supply of new housing, the lower the demand
There’s no ‘perfect’ time to invest
In theory, buying an investment property at the bottom of a market cycle makes perfect sense.
In reality, though, trying to time is a common mistake investors make, because it’s impossible to know at the time how the property cycle will play out. Also, waiting for the ‘perfect’ time to invest typically leads to inaction and missing out on a great opportunity.
Property is a long-term game, so, instead, you should focus your efforts on:
- Buying the right property at the right price
- Holding it for the long term
- Letting time in the market work its magic