Supply vs Demand. It’s most likely one of the first topics you’ll learn in any fundamental economics class. In terms of real estate, whether you’re selling or purchasing, the same rules apply. At any point in time, it’s not just the current state of the market, but your knowledge of the circumstances that will put you in good stead towards making better property and financial decisions. Let’s take a quick look at what they exactly are and some of the factors involved.
Buyer’s Market
A buyer’s market at its most fundamental is where supply is greater than demand. This could be due to various reasons from current economic conditions to lending regulations. A high supply ultimately results in downward pressure on housing prices. This is in tandem with a longer ‘time on
Seller’s Market
On the other side of the coin is a seller’s market, where predictably, demand is greater than supply. The same factors apply, but much in the reverse. In this scenario, vendors tend to sell not only a lot quicker but at a higher price. Buyers have less negotiating power, which commonly results in higher median home and unit prices. As such, the time on market is on average shorter.
What Are Some Of The Factors
Interest Rates
Whenever the RBA (Reserve Bank of Australia) increases the cash rate, banks tend to increase their interest rates, in particular, the cost of variable mortgages. A small increase in loan repayments can turn quickly into a hefty amount over the long run. As such, they tend to decrease demand in the housing market due to the higher costs involved. More recently, APRA’s tighter regulations on bank lending have made it more difficult to obtain loans. To be more specific, they’d placed a cap on the proportion of interest-only loans available to a maximum of 30% of new mortgages approved. This was in tandem with more vigilant and rigorous credit checks with the royal commission playing a big part.
Economic Growth & Demographics
Increased economic growth would stimulate higher wages and higher consumer spending. Meaning you would tend to see higher demand. Supply and demand don’t only have to be countrywide. It can also be in particular pockets isolated in states or even suburbs. Increased migration in a certain town, would stimulate demand. An example may include a suburb going through gentrification and thus attracting more residents.
Ultimately, as previously noted, it’s important to be wary of the factors and the current state of the market. This is to ensure that you make the best possible decisions with the relevant knowledge you have at hand. When you take everything into consideration, you’ll be well on your way to simplifying your choices in what would have been an otherwise complex market.