Is this market a Boom or a Bubble?

The Property market has been in the headlines every day lately.  

Many commentators are calling our current property market a boom, while others are saying that we are in a property bubble.

The property market has performed surprisingly well, avoiding the drastic 40 per cent plunge some experts predicted in early 2020, but there are still questions being asked. 

Is this market a boom or a bubble?

So to get a better understanding of what’s ahead for our property markets perhaps we should ask the following question:

What’s the difference between a housing boom and a bubble?

Our property markets, like the economy, move in cycles with the property boom (when property values rise strongly) usually being the shortest phase at the end of the cycle.

Property booms eventually run out of steam and end in a small price correction.

On the other hand, by definition, bubbles burst and house prices end up much lower than where they started.

Let us now discuss what is currently happening in the market.

The Reserve Bank of Australia (RBA) predicts a low cash rate will be here to stay for at least three years, reflected in the recent decision to keep the official interest rate at the record low of 0.10% in March.

The RBA may develop second thoughts about this timing for a rate rise, as some initial signs of economic recovery have begun to emerge – namely, rising house prices; while CoreLogic reported on Monday that Australian home prices had surged 2.1% higher in February, the largest monthly increase recorded by the property research house since August 2003.

Although CoreLogic’s latest data suggests housing supply is much lower now than it was last year, it shows the number of properties advertised for sale in February around the country remained 26.2% below 2020 levels.

Meanwhile, demand for property is still very high, creating a rise in house prices.

Another big question looming is, “Will changes to JobSeeker impact the housing market?” 

The temporary supplement to JobSeeker payments in Australia are set to finish at the end of March 2021. 

When considering this question it is important to acknowledge that the JobSeeker supplement has already been reduced significantly in recent months, with no dampening impact apparent on the housing market as a whole.

In late March 2020, the original JobSeeker supplement was set at an additional $275 per week. In late September, the supplement was reduced to $125 per week, and it was reduced further to $75 per week through the first quarter of 2021.

However, housing market momentum has increased from September to January, amid the reduction in the supplement. Between the end of September and January, the CoreLogic national home value index rose 3.2%, and rental values increased 2.5%. Changes to JobSeeker would likely have little direct impact on housing market values. 

Based on the news and trends we are in, what looks to be a new property cycle, with the current mix of increasing consumer confidence and pent-up demand at a time of historically low-interest rates, easy finance and a plethora of government incentives is causing the current surge in housing demand.

With the RBA prediction that low interest rates will be here to stay for the next 3 years, this strongly suggests that property, while it may be booming, will not see it burst like a bubble.

Now, more than ever, is the time to take advantage of these opportunities that the current markets are offering.  While markets are booming not all markets are equal. That is why you need to speak to the team at RPA, the trusted name in property investment, to provide you the direction, guidance and results you come to expect from RPA.