Whether an aspiringconsidering taking the plunge or a full-time investor wanting to brush up your knowledge, this article gives you seven key property investing market fundamentals to consider.
1. Real estate cycles
is a cyclical investment. History shows that the moves through a cyclical pattern.
The Psychology of Real Estate
As the market passes through the typical ‘boom and bust scenarios, outstanding investment opportunities are presented to astute and patient investors with the tools andconditions. Conversely, some investors who choose not to take a longer-term view may panic during financial volatility and uncertainty characterized by economic downturns.
2. The impact of sentiment and confidence
Sentiment plays a significant role during these ‘bottom of the cycle’ periods. The real estate market can easily be talked down on rumors and adverse media reporting rather than reacting to factual data. market comprises countless micro-markets, each responding differently to various economic factors. During a downturn, there will always be opportunities that buck the trend and can be a worthy addition to your portfolio – if you can find, research, and analyze them using accurate, timely data before the rest of the market.
Target the best-performing suburbs
An excellent way to target suburbs that contain affordable investment properties or properties with the highest yields is with theReports. As the market turns upwards, confidence returns, building approvals rise, and the situation quickly changes. Suppose an investor is courageous and clever enough to dive into the market towards the latter stages of a market downturn or bust. In that case, there are excellent prospects for substantial future capital gains providing the economic opportunities are also positive in the medium and long term.
3. The economy and timing
The health of the economy has a direct impact on real estate where the economy is failing. As confidence returns and the economy picks up, this population movement can be reversed, and housing demand increases.activity levels. The fallout from a struggling economy in one location is reflected in rising unemployment, as shown in this graph (source ABS). This can generate a population exodus to areas of better employment prospects and reduce demand for
4. Impact of wage levels
Wage levels can also have a bearing on real estate. may upgrade to bigger houses and better suburbs, and ultimately higher house prices can result. There are, however, usually many other factors at work at the same time. The more liberal availability of funds for housing in a buoyant economy will reflect increased demand and higher numbers of approvals. With the loan growth, approvals come higher turnover of . Ultimately, price levels represent home buyers and investors’ ability to meet the affordability and debt . If credit is readily available and , the market flourishes, and prices increase with increased activity and demand.and dwelling activity. When household income rises, there is a prospect of higher wage levels resulting in more demand for
5. Impact of interest rates
Interest rates represent your income as a depositor or your cost of funds as a borrower. The interest rate level will dictate investors’ capacity and enthusiasm to purchase real estate. Periods of high-interest rates can occur at the end of a long sustained period of economic growth and the subsequent inflationary pressure on the economy. The RBA ( of Australia) will steadily increase the OCR (Official Cash Rate) to slow property market activity. The increased borrowing costs eventually result in reduced buyer demand and sales activity in the .
When The Reserve Bank intends to improve market will receive new orders and put upward pressure on prices. When the economy slows, the RBA does the opposite and reduces the OCR. While the Reserve Bank sets the prevailing official , interest rates for home finance are also influenced by local and international market forces. Consequently, banks will require smaller or larger lending margins depending on factors, creating additional volatility in interest rate levels.when interest rates are comparatively low. Buyer and investor demand will increase, and the
6. Demand for credit
The demand for credit and the level of funds available for lending will impact rates. If the money supply is restricted to property developers and investors, it can suppress the property market andgrowth longer, pushing up rents and rental yields in the short term.
Inflation Target Over The Long Term
With plenty of money to lend and intense competition amongst lenders, rates and lending margins will fall. High inflation tends to lead to rising interest rates. If the annual inflation rate starts to climb above Reserve Bank targets, the Bank will typically dampen down demand byrate, and by default, home loan interest rates will increase. When the economy starts to slow, . The cash rate will unlikely , as this recent quote from the RBA Governor would suggest. With a more deregulated and global financial system, overseas rates can also affect our interest rates. If local deposit rates are non-competitive, funds can move to more attractive deposit options in other countries. If Australian rates are comparatively lower, overseas cash will not enter our markets.
7. Currency fluctuations
Currency fluctuations will affect interest rates too. As the, the Reserve Bank can act to reduce the money supply, which increases rates as available loan funds dry up. The theory is that higher rates will attract investment from offshore and support the currency. It’s a delicate balancing act – if rates are set too high, , and a recession can follow.