Look to the fundamentals

Up, down, or sideways, the property market is always moving and never static. But there are certain fundamentals you can learn that will help you navigate the cycles and make the most out of your property decisions.

10 October 2022

Cameron Leggatt
Executive General Manager Development

Follow the cycles of the property market long enough and you’ll see your fair share of peaks and troughs. Some, like the credit crunch of the global financial crisis, had their warning signs. Others, like the lockdown-led boom last year, took most of us by surprise. Whatever the cause, market cycles are a fact of life, closely watched by those reading the tea leaves hoping to buy low and sell high.

That’s all very well and good if you’re taking a short-term view. For most homeowners and would-be homeowners, the mid to long term view matters much more. If the home you’re looking at is somewhere you expect to live for the foreseeable future (and even longer), then the ups and downs of the property market today need to be weighed against some other important factors.

Understanding the fundamentals

The first is understanding that property values are intrinsically tied to supply and demand. Supply is a function of how many blocks of land or apartment sites developers can bring to the market each year, how quickly builders can build new homes on them, plus the number of established homes up for sale. In simple terms, demand is how many people have the desire and capacity to buy a new home. Demand goes up with population growth and goes down when economic indicators like unemployment go up.

And while movements in interest rates tend to get all the attention because they represent the cost of borrowing money, I think the more interesting fundamental at work today is the unemployment rate. While it’s true that rising interest rates dampen demand, they currently remain well within the affordable range. What’s offsetting the dampening effect of recent rate rises is the unemployment rate, which is the lowest it’s been in almost 50 years.

Why does that matter for the health of the property market? Because when people have steady employment, banks feel more comfortable extending them credit for big purchases like cars and homes.

On the supply side, things are looking a little tight. The reality is that opening up new pockets of development takes time there are acquisition, planning, statutory approvals, and construction timetables to navigate. Add to that the perfect storm of the pandemic-boom and one of the wettest years Australia has ever recorded in 2022, our supply situation is struggling to keep pace with demand, especially as borders have reopened and students and overseas workers come back to Australia.

As long as that imbalance is in place, the longer-term outlook means Australia’s property market still has plenty of life left in it.

Know thyself

In my role, I have a lot of young people asking me for advice about when the right time is to buy their first home. My answer is always the same: the right time is when you say it is.

That’s because everyone’s circumstances and goals are different. And knowing where it is you’re headed and what you value most is more important than what the newspapers or your well-meaning relatives tell you. Do your research, of course. Do lots of research according to where you want to live and what’s available today versus what will be there in a few years. You want the choice to fit you well for years to come.

As a first home buyer, one of the other things to understand is that your first home is exactly that: the first of what will likely be several properties you’ll own in your lifetime. Gone are the days of our parents and grandparents where one house served all your needs for twenty or thirty years – through marriage, children, and empty nesting. The average first home buyer today sees it differently, opting for a starter home that gets them out of renting and into ownership as soon as possible, even if that means delaying some of what’s on their dream home wish list to their second or third home purchase.

Stronger, smarter, happier neighbourhoods

Which brings me to my final point about fundamentals. In property, there are certain elements that demonstrate a degree of imperviousness to down-market cycles. A desirable location is one. Convenience and connection are another. Neighbourhood character especially.

These kinds of traits are why Australia’s property market isn’t actually the monolithic system it’s often portrayed as. Some suburbs, and pockets within suburbs, continue to perform well when other areas are declining because they’re simply better to live in and always have underlying demand.

Self-contained neighbourhoods that offer high levels of amenity and convenience, such as Ed.Square in Sydney’s south west and Burwood Brickworks in Melbourne’s east; lifestyle locations with unparalleled aspect like The Waterfront, Shell Cove on the NSW south-coast and Port Coogee in Western Australia; as well as close-knit suburban communities like Brookhaven in Brisbane have the kind of enduring popular appeal that frequently sees waitlists of people eager for the next release.

The next horizon

I do think the fundamentals, including Australia's love of property, remains healthy. At the end of the day, what I focus on is creating the kinds of communities people want to come home to, today and for generations to come. That means putting more into those neighbourhoods –— walkable streets, beautiful and practical public spaces, community development, sustainability initiatives, and local retail –— so that people get more out of living there.

After all, it’s quality of life that’s the most important property market fundamental of all.

Cameron Leggatt
Executive General Manager Development