Signals and signposts. The key indicators that will determine the 2017 market

The 2017 property market could see a continuation of the boom. Predictions across a range of analysts predict growth anywhere between 5 and 15%. Conversely, the correction that many have felt was imminent for the past few years could occur.

The key to anticipating the market whether you are buying or selling is to follow the relevant signals and signposts that are likely to determine the market.

Interest rates – there are two interest rates to follow. Firstly, the Reserve Bank of Australia’s (RBA) cash rate, which is currently set at an all time low. Make no mistake, the RBA cash rate is at a record low and house prices are at an all time high. There is a direct correlation here. The second key interest rate setting is the retail banks rate movements. In the past few years, the retail banks have moved rates, up and down, independently of the RBA.

Employment/Unemployment – The national economy is struggling, the NSW economy is booming. In the short term, following the NSW unemployment rate is more important to the Sydney housing market than the national unemployment rate. The respective state economy is a better immediate indicator of how the property market is likely to perform that the broader national economy.

Rents – If property prices continue to rise as rents stagnate, investors will shun the Sydney market in favour of regional centres and interstate capitals. Newcastle and Hobart are just two examples of where investors have looked to in recent times in favour of Sydney. All stable property markets appeal to a broad range of buyers. Low yields that fall further will cause Sydney investors to focus solely on capital growth. After 5 years of strong growth, that’s a big call.

Time on market – how long does it take for a property to sell? In a strong market, sales occur in a rapid timeframe and vice versa. By anecdotally following time on market for properties in your immediate area, you will gain an insight into how easily (or not) buyers and sellers are coming together on price.

Apartments – for the first few years of the current boom cycle, apartments performed equally well as houses, in terms of price growth. As high rise after high rise came up for completion, apartments subtly begun to underperform houses. Sydney does not seem to have the apartment oversupply that Brisbane and Melbourne does. But if rampant oversupply of apartments were to occur, it could easily weigh on rental returns and house prices. It is worth noting that the new NSW Premier Gladys Berejiklian plans to address the housing affordability crisis through development/supply. The

Black Swan event – Regardless of the apparent strength in the property market, its wise to be aware that Black Swan events occur. They are rare but they exist. A Black Swan event is usually rapid (like the collapse of Lehmans Brothers in 2008) and have dramatic knock on effects. Given the amount of debt swooshing around the world at present, systemic risk is real.

Bidders per property – the market depth is more accurately reflected in bidders per property as opposed to buyers at open inspections. It costs nothing to walk through an inspection. To place an unconditional bid on a property means the buyer is serious. The more bidders per property, the stronger the market and the deeper the buyer pool. Attend auctions and see for yourself the vigour in the bidding.

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