A property cycle depicts four phases that are associated with the movement of home values. The stages are most commonly referred to as the boom, bust, bottoming and recovery.
I have an aversion to the use of the word “bust”. The descriptive insinuates prices move to negative territory. It is important to note that not all price cycles result in a period of backwards growth.
Preferably it should be looked upon as a reference to the rate of growth. Of course the bust phase can result in prices declining. However, often it displays moderation to the rate of growth, whereby prices move at a slower pace compared with the level that was experienced during the boom growth phase.
There is no single property cycle in Australia – there are a number to keep your eye on. They differ between cities, property types and even regions. An example is Australia’s current east and west contrasts. Perth is tipped to be at the bottoming phase while market indicators suggest Sydney is moderating from a period of booming price growth; two major cities at opposite ends of the spectrum.
Many experts describe a property cycle to exist roughly every seven years. The truth is that Australian housing cycles have been occurring in greater frequency. Since the millennium, Canberra’s house market has experienced a number of property cycles, with the boom phase having an annual peak growth rate in 2003, 2007 and 2010. The current cycle is still unfolding.
Following the boom phase of the property cycle in 2003, 2007 and 2010, house prices did experience an annual moderation that dipped to negative territory. The most notable fall to house prices followed the boom of 2007; at the peak of the cycle values scored 15 per cent growth annually, whereby prices topped at $501,954. The median house price then tumbled to a low of $474,616 by December 2008. Price recovery took until the September quarter of 2009 to surpass the prior peak. Related articles: Selling your home in the summer Canberra market
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House prices in 2003 notched the greatest annual percentage change compared with 2007 and 2010 at 28.9 per cent. The median house price peaked at $392,219 before a minor downward adjustment by 1.3 per cent to $386,973, although prices did bounce back by the following quarter.
In 2010, house prices gained 16.4 per cent at the peak reaching $569,665 and a low of $552,778.
A series of factors influence property cycles with monetary policy having a notable impact. Other influences include supply and demand, socio-economic factors, consumer sentiment, as well as unemployment and job security.
So far, the highest annual rate of growth in Canberra’s current housing cycle was achieved in the March quarter of 2017 at 9.9 per cent. This is the highest annual rate of growth since September 2010. House prices are now at a record high $714,975 as of the September quarter.
Purchasing decisions can be swayed by assumptions of the current position in the property cycle. A booming market can often lure purchases to be made at the peak of growth in the fear of missing out. Understanding the property cycle can help time a home purchase at the lower period of growth rather than high.
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