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Seven signs that now is a good time to buy property in Australia

If ever there was a smart time to buy real estate in Australia, that time is now. The property market has strongly defied predictions of a COVID-induced downturn, surprising many who expected prices to dip - particularly after the wind down of JobKeeper.

To best understand the factors that make now a great time to buy, it’s key to know how the cycles work in the Australian property market. Put simply, the market moves through four phases: downturn, stabilisation, upturn and boom. These phases can be visualised as four segments of a circle.

Among the many factors influencing the movement of the cycle is population growth, which fuels demand for real estate. This commonly pushes prices up, resulting in the upturn and boom stages of the cycle.

A downturn, sometimes referred to as the bottom of the market, typically occurs when there’s an oversupply of housing stock. This creates downward pressure on property prices, high vacancy rates and low rental prices.

Although there’s no strict timing of a property cycle, historic patterns show they commonly last seven years. Property growth in Australia peaked in 1981, 1987, 1994, 2003, 2010 and 2017.

Currently, there are many healthy indicators in the Australian property market. Here are seven signs it’s a good time to buy:

1. Strong price growth

You may have heard family and friends discussing the sharp price increases in their neighbourhoods. It’s not just gossip.

Nationally, house values grew by 2.1 per cent in February - the largest increase since August 2003, CoreLogic data shows. Capital city prices increased by 2 per cent, with Sydney and Melbourne leading the charge.

These figures show the country experienced the biggest monthly price gain in 17 years.

This is owing to a combination of factors including strong buyer demand for low levels of stock. In other words, more buyers vying for fewer homes on the market.

Strong capital gains, especially when compounded over decades, are a motivating factor for many weighing up the buy vs rent equation. In fact, in many cities across Australia it’s much more expensive to rent than buy. Rental demand is still high and in some cases, outstripping income growth.

Based on Australian Bureau of Statistics data, the average compound annual increase in Australian house prices over the past 15 to 20 years has been 5 per cent.

2. Low interest rates

Australia’s property market continues to be fueled by record low interest rates, lifting buy confidence. The cash rate has slid downwards ever since November 2010, which is when the Reserve Bank last lifted rates.

Since then, the RBA has cut the cash rate 18 times by 4.65 percentage points. This of course, makes it a great time for lenders to borrow with financial institutions offering competitive rates.

Fixed home loan rates are especially low, driving many to opt for fixed terms over variable rates. Traditionally about 85 per cent of borrowers choose variable rate mortgages, but with fixed rates so low, as much as 50 per cent are fixing their mortgages.

3. Undersupply of housing stock

In a booming market, there is usually a low amount of properties on sale. It means buyers face more competition for each house they consider and have a stronger sense of FOMO to contend with.

CoreLogic data shows the number of houses advertised for sale in the first three weeks of February was down 26 per cent from a year earlier.

Low housing stock has underpinned unprecedented buyer demand. According to the REA Insights Housing Market Indicators Report, sales volumes have surged by a third so far this year

4. Falling unemployment rate

Unemployment rates hit seven per cent in October last year thanks to the devastating impacts of the coronavirus pandemic. But the economy has rebounded impressively and there are now a lot less people out of work.

As an indicator, the number of job ads on SEEK increased 10.3 per cent in March to be 24.3 per cent above pre-pandemic February 2020 levels.

Latest ABS figures show Australia's unemployment rate had fallen to 5.8 per cent in February. An extra 88,700 people found jobs that month, pushing the number of employed Australians to more than 13 million for the first time in 11 months.

5. Household wealth increasing

Despite the strains of the pandemic, Australia's household wealth has increased.

It pushed up by $501 billion in the last three months of 2020, according to the ABS, and this was the strongest quarterly growth since December 2009.

Wealth per person hit $467,709, and total household wealth was at $12 trillion — both record figures.

The boon is largely owing to rising property values, but also takes superannuation savings, shares and other investments into account.

6. Fixed rates tipped to rise

The low interest rate party won’t last forever. Lenders are expected to put the brakes on Australia’s rising property prices by lifting fixed interest rates.

Fixed mortgage rates are expected to rise in 2022 and many commentators expect the Australian Prudential Regulation Authority will intervene with macroprudential restrictions to cool prices.

Although the RBA kept the cash rate on hold in April, some banks have already increased their four-year fixed rates. Analysis by RateCity 11 lenders raised 4-year fixed rates, including CBA, Bendigo Bank and Aussie Home Loans, while only two have cut them.

7. Strong auction clearance rates

Auction clearance rates - the percentage of properties to sell at auction - is a good way to take the pulse of any property market. And while there may be less for sale in Australia than usual, healthy competition has seen auction clearance rates skyrocket.

CoreLogic statistics show the national clearance rate was at 84.4 per cent in the last week of March - the strongest since 2015.

Sydney and Melbourne, the nation’s auction capitals, led the way. Sydney recorded a 85 per cent clearance, which became the seventh consecutive week where Sydney’s auction clearance rates were above 80 per cent. Melbourne recorded a clearance rate of 78.8 per cent.

All in all, we are living in the midst of a healthy property market that people didn’t expect to see for years post-COVID. Some may have put off buying or selling, fearing a ‘bubble burst’. But economic indicators show there is no bubble with price growth and rising employment expected to continue throughout the remainder of the year.

History has shown us this positive market will eventually turn, but picking when is nigh impossible. Even the most experienced economists would struggle to put a finger on it.

All signs point to getting into the market now.

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