With rising prices in Australian real estate, many wonder if now is the right time to buy. Despite concerns, we are far from the market's peak. This article delves into key data points, revealing significant opportunities for wealth building in real estate over the next 24 months. Understand the market cycle, construction delays, and economic impacts to make informed decisions.
.webp)
With prices increasing in Australian real estate, it's fair for people to start thinking: “Is this the top? I don't want to buy when everyone else is experiencing FOMO.”
The reality is: We're really far from the top.
I know it's hard to believe, but I want to share with you some data points that are quite revealing in terms of:
If you're interested in what my thoughts are, then definitely keep reading.
Now, the completion rate of dwellings in Australia remains well below pre-pandemic levels, contributing to the country's current housing supply crisis.
A new CoreLogic report analysing the ongoing effects of the pandemic on Australia’s housing market predicts that construction blowouts will likely worsen this year, a news report revealed.
Unit construction projects now take an average of 8.3 quarters from start to finish, or more than 2 years.
That's 6 months longer than the 6.3 quarters of building time pre-pandemic. Townhouses take an average of 4.1 quarters, just over a year, while new house constructions take 3.1 quarters to complete, or more than 9 months.
Before the pandemic, the average house completion time was just over 6 months.
Previously, on my YouTube channel, I've covered that approvals are really low, and we're simply not building enough.
What I'm covering here is that it's actually taking longer to build something.
First, you’ve got to get approval, which will take longer.
Once you get an approval, you’ll build something, which will also take longer.
Now, combining these things means that we have a cheat sheet on what supply could look like over the next 24 months.
Why? Because in reality, unless we see a significant number of approvals now, those actual construction projects won't come to fruition for at least 18 months. Based on what we are seeing right now, the timeline keeps extending further. This is a major problem because we need supply immediately. We are facing a rental crisis with an insufficient number of rental properties available. Australia's vacancy rate is well below 1%, causing various economic issues, but primarily, it mainly means that rents actually go up.
Speaking of “increasing rents,” the reason why it is such a big problem for the economy is that: If you were previously spending about 20% of your actual income weekly towards rent, you had 80% left to spend in the economy, doing other things.
But now, as rent increases, it increases the proportion of how much of your income is being spent on things like rent and housing. As a result, you’ll have less to spend in the economy. That's generally how monetary policy works.
Why? Because as interest rates go up:
This means: Less in the economy, and the economy starts to shrink, and we did this on purpose because inflation was running hot. However, what we've seen recently is deflation starting to become a problem. It might not be a problem right now, but it could be in the next 24 months.
So, we've covered the fact that:
Now, to compound all of this: Construction costs are also increasing.
What we've seen is construction costs were so high over the last 18 months. We've started seeing that number come down, but it is still quite high relative to where we were pre-pandemic.
So naturally, people are having to borrow more to build something that they could have built for 20% or 30% less only a couple of years ago. This also stops people from building something new and saying: What's the point? Let me just buy something that already exists.
Now, over the last couple of years, I've covered extensively on my Youtube channel the problem with the government strategy that aimed to build 1.2 million homes. It sounded perfect on paper, but I had no confidence that they would actually execute it.
So, let's see what the update is on that front…
Under the federal government's strategy, to see 1.2 million homes built in the next 5 years, Australia would need to add 60,000 dwellings per quarter.
Recent quarterly data from the Australian Bureau of Statistics (ABS) showed that new dwellings continue to lag the ambitious target.
The latest figures put the country's total housing stock at over 11.1 million residential dwellings as of December 2023.
However, the record mean price for residential dwellings perhaps best indicates how low supply and high demand fuel Australia's property values.
New figures released showed that 12,850 dwellings were approved nationally in January.
So, if you were to go and see what that looked like from a quarter perspective, we would be nowhere close to that 60,000 number.
Private house approvals led the 1% monthly drop in building approvals for January 2024, following a 10.1% fall in December, seasonally adjusted.
All this means that: We are screwed because we are not building enough houses, and although there was a massive target, I think they brought out the massive target to then say: “Well, don't worry, we're building the homes. Let’s open the immigration floodgates. We then have all these people come into the country, but don't worry, we're about to build all these houses.”
Clearly, the government was wrong yet again.
The figures follow forecasts from the Housing Industry Australia, indicating that fewer than 100,000 new construction projects will begin in Australia in 2024, marking the lowest number in a decade.
The Housing Industry Association (HIA) predicts Australia will fall short of 175,000 homes by 2027.
I'm going to go out on record and say: We're probably going to need a hell of a lot more, and the crisis will be a lot worse by 2027.
But there is only one thing that could possibly change this, and it would be to introduce something like a home builder package and have interest rates drop quite significantly at the same time.
But even if we have those scenarios play out, which again is most likely not going to happen, you would still see a lag of about 18 months before we saw all that new supply come into the market. This is why it is so important that you realign your expectations and your mindset around getting into the property market.
All the time, I hear people say:
“I'm waiting because the market's going to drop.”
“Oh, it's going to cool off because, you know, interest rates are so high.”
The reality is: It's so different from what barbecue conversations look like versus if you're in this 24/7.
As you may know, we run a buyers agency, one of the fastest growing in Australia. We acquire anywhere from 10 to 20 properties every week, granting us substantial insight. Additionally, we often face rejections on numerous deals as we negotiate on behalf of our clients. This process provides us with a wealth of information regarding:
And what we're seeing is very different now than it was 6 months ago. People are entering the market, and just because a few individuals close to you anticipate a crash, it doesn't necessarily lead to one.
Honestly, I'll be the first to come out and say: “Look, some of the stuff is looking shaky. This is probably when you don't want to buy property.” Nobody else is going to tell you that.
In fact, I came out before and said: “Sydney and Melbourne don't make any sense, especially when interest rates started moving up.” You can revisit my YouTube channel videos from around the peak of Sydney prices in 2021 or 2022, and you'll find that I was discussing this topic during that period already.
Now, naturally, when prices go up, people are concerned (because affordability is a significant concern). You can't rent because it's too expensive, and if you're renting somewhere where rents have gone up, it takes you much longer to save your money. Then you have the government intervene (we know what happens when the government intervenes). We can't just have a free market these days, unfortunately.
So when you see headlines like this, you have to start putting your thinking cap on and saying: “Okay, I need to execute.”
If there's money that you can suddenly use to purchase your own home, that's going to cause prices to go higher.
The main point with that strategy, and how it's set up right now, is that:
What this could suggest is that: There could be a policy that might come out. I'm not sure whether it will happen or not.
However, if something like this comes in, you'll start seeing emotional buyers wanting to secure something for themselves a lot higher than they could afford and super is very important as part of your retirement.
As for me, I advocate for building out your retirement portfolio well before you're in your 60s. If you do this early and you execute with the right team, you could go and retire with financial freedom in your 40s and 50s, depending on when you start.
If you need any help with this, book a free discovery call with Search Property so you can understand how everything works.
It can be a fascinating time for anyone who holds assets, but even when prices go up, you will get FOMO and might buy at the wrong time, negating all of the positive gains you've made in your portfolio.
This is why strategy is so important.
Another thing to pay attention to is consumer confidence.
Why? As the number rises and gets to the top, that's pretty much when you know people are greedy, thinking that they can make money everywhere, and this might be the time to rotate your funds out, maybe through real estate or into cash itself.
I hope you’ve learned a lot from me in this article.
I'll catch you guys in the next one. Thanks, guys!
.png){kind=icon}
.jpg)
.jpg)
.jpg)
.jpg)
%20(1).jpg)
.jpg)
