Less Affordable Housing in Australia is Leading to Growth Cycle Tapering

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Australia has been experiencing an unprecedented rise in property prices for the past year. In fact, 218 markets have reached the million-dollar mark in over a span of a year. Various state regions and most capital city markets have recorded relative increases in property market values. To property owners, 2021 has been quite a good year so far. So how can this be a worrying circumstance? Growth Cycle Tapering is a factor that must be considered.

It’s important to look at the facts and figures to understand what led to the current tapering of the growth cycle in Australia’s property market. CoreLogic has released new data showing how the rise in property market value (which made it less affordable) is currently leading to the growth cycle tapering.

Australia’s Property Market at a Glance

For the past year, Australia’s property market values continue to rise. According to CoreLogic’s national home value index, the housing values in Australia increased by 1.6% in July. This is 14.1% higher for the past 7 months and 16.1% higher for the past 12 months.

While this may be the case in terms of the rise in overall value, Tim Lawless from CoreLogic suggests that the market’s growth is possibly slowing down. The property market is strong now, but it is losing its steam in terms of growth.

According to Mr Lawless, the national housing value’s growth rate of 16.1% has been the fastest so far since February 2004. However, even if the overall values are increasing, the growth rate is gradually slowing down since March 2021 – the month when the national index rose by 2.8%.

What is Causing the Growth Cycle Tapering?

There are several reasons why the property market may be experiencing growth cycle tapering. Here are two of the most probable factors contributing to the gradual slowdown:

  • Rising Values of Properties

Housing and unit values are increasing more and more this year. However, the income of Australians is not increasing at the same rate. This makes housing less affordable and more out of reach.

  • Less Fiscal Support on Housing

The Australian government has provided fiscal support to qualified Australians to help them acquire residential properties even in the middle of the pandemic. However, these have already expired, so new prospective homeowners wouldn’t be able to get the same financial assistance as before.

These factors lead to the same result: less affordable properties in the market. So, even if there is actual demand for housing and units, those people would not be able to acquire the properties they want. Therefore, they wouldn’t be able to help move the wheel to enforce the growth rate in the property market.

Supply versus Demand

While the overall housing prices in Australia may be unaffordable to some, there’s a reason why there is still growth amidst everything. For one, the mortgage rates of the properties are at a record low. At the same time, people are attracted to the idea that interest rates will remain low for a longer period.

The sales on housing are tracking 40% more than the 5-year average, and the number of listings is 26% below the 5-year average. There’s less advertised supply compared to actual demand as well, which contributes to the upwards pressure on prices in the property market.

Understanding the Factors Affecting the Housing Growth Cycle

Overall, there is still an appreciation in terms of dwelling prices in Australia. However, this pace of growth is slowing down due to the unaffordability of the properties. To better understand how the property market works, buyers and sellers in the market should read more about the housing growth cycle.

Learn more about Australia’s property growth cycle to see how it can affect you as a property owner or prospective buyer. Here at Makes Cents, we have hundreds of articles where you can get insights and ideas for your next financial move.

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