Private House Sales Hurt by Real Estate Property Prices
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Bad news for private real estate for sale by owner sellers as the prices of real estate in Australia won’t be increasing in the near future, even if the RBA reduce interest rates over the coming months. Rather, residential property prices of real estate are set to fall in the coming 12 months as the real estate and property market embraces itself for a turbulent period. Below are some reasons why….
Properties are Overpriced – In most areas across Australia real estate and property prices are still tinkering not much below the high real estate prices of the boom time. Obviously a few places (like Western Sydney) have been hit hard but most areas have seen real estate prices reduce by a small amount, but nowhere near the prices they were before the boom. This is because many property owners are holding on to their houses in an effort to ride out this storm, resulting in real estate prices staying artificially high.
Resources Boom – The resources boom pumped up the Australian economy and in particular real estate and property prices for real estate across markets in WA, SA and QLD. This boom is slowly drying up and means less demand for real estate which will reduce property prices across the Australian market.
Developers No Access to Finance – The financial crisis means it is harder to obtain finance, in particular large developers wanting to undertake real estate development projects. In a subdued property market these types of real estate developments carry a large amount of risk which banks and financiers try to avoid.
Liquidity Crisis for Investors – Investors have been hit hard by the share market and hedge fund losses, meaning they have diminished funds available to invest in real estate in the property market. So less investors in the market purchasing real estate and investment properties will affect the prices of apartments and units across Australia.
Recession Looms / Job Uncertainty – There is uncertainty amongst people in the economy about where the economy is going. This uncertainty will scare property owner away from purchasing additional real estate (in particular investment house) and also deter first home owners who are thinking about purchasing a house.
You should maybe reconsider your strategy if you are anticipating real estate and property prices to rise over the next 12 months.
Comments
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Clarence Scott
07.10.08
6:47 am
You raise some good points but i think you overlook to large forces in the economy, interest rates and a shift in investment.
Interest rates are likely to reduce over the 6 months anywhere from 2 to 3 %, this means access to funds should not a be problem for property developers and also this should steer the economy away from any recession.
The shift in investment I am talking about is people taking their money from banks, term deposits, the share market and putting it into property. With interest rates likely to reduce, the poor share market return and the low priced real estate on the market is a perfect combination for investors to put their money into the property market.
Trent Piccilo
07.10.08
4:06 pm
What you say could well happen Trent but the issue still stands that property prices across Australian are still artificially high. Property owners are still holding off from listing their property on the market.
If things pan out as you say they will then this will encourage more of these property owners to put their houses on the market. At the most the net affect would be that property prices stay as they are as an increased demand will result in an increase in supply of properties.
I honestly don’t see property prices increasing across the board in the coming years until the decrease to a more accurate amount.
Bob Sacamento
08.10.08
7:10 am
Surely the 1% interest rate reduction yesterday will have a positive impact on the property market. I can’t see why this would limit access to funds. Won’t this also mean those property owners who have their property on the market or who are considering selling their property because of mortgage stress, maybe don’t need to? This will work in contradiction to what you are saying about the supply of houses, the supply will full and demand will increase which will increase the price of houses.
T-Bone
08.10.08
9:10 am
Perhaps, but i think these property owners are extremely over stretched in regard to financial stress and want to free themselves from this. This means properties will go on the market and even though access to funds is cheap the other negative economic factors in the economy will impact on investors wanting to purchase property.
Bob Sacamento
10.10.08
7:16 pm
It will be interesting to see how things pan out especially what happens in the market after the 1% interest rate reduction.
Trent Piccilo
11.10.08
5:45 am