Understanding property cycles

The property market is cyclical in its performance and when you are planning a real estate transaction in the future, it helps to understand this.

Each cycle has its own drivers with the most common feature between cycles being interest rate movements. A quick history lesson. In the late 1980’s there was a significant property boom. Interest rates were steadily raised during this time to quell this market and peaked at an unbelievable 17%. This resulted in Australia going into recession. “The recession we had to have” as the then treasurer Paul Keating famously announced. This resulted in a significant downturn in the property market and there was no upward price movement for the next seven years. Interest rates were slowly wound back, ebbing at 6.5% in 1998. By this time the Reserve Bank had taken control of interest rate setting, with an aim to keep inflation in check and therefore add stability to the Australian economy. This has ensured that interest rates have fluctuated in a much narrower range ever since. On the back of this stability, real estate prices between 1997-2003 tripled. In November 2003 interest rates were raised and dummy bidding at auctions was made illegal which had a negative effect on the property market. The next two years were quite subdued. In 2005 the market steadily picked up again with 2007 being a very strong year. The GFC hit in February 2008 and interest rates were slashed to avoid what was occurring in the USA. Significantly the immigration laws were changed to allow easier access to Australian residential property, and this started the significant influx of Chinese buyers that we have seen since. This resulted in 2009 and 2010 being very buoyant markets. Interest rates were raised steadily through 2010 and 2011 to quell this, but started reversing in late 2011 as the European debt crisis hit. 2012 was a very difficult year as the stock market also plunged. Since then interest rates have continued to be reduced as the “mining boom” petered out and this has resulted in the very buoyant real estate market we see today.

As you can see the drivers change in each cycle, but while the interest rate trend is down, property market participants will continue to transact in high numbers. At some point in the future the trend will change and so Marty Maher will the number of buyers and sellers.