Brisbane Property Market Insights July 2022
This Brisbane Property Market Insights July 2022 has been brought to you by a finance and property professional with over 20 years of experience working in many different market sectors of the Brisbane property market. These insights are not based on reports from outside sources and make no claims about future property prices in Brisbane.
Brisbane Property Market Overview
For the first time in a few years, we see a slow down in the Brisbane property market. A direct result of 2 major factors we have been under this year. I have never seen so many properties on the market for this length of time, nor have I been able to negotiate purchase prices of between $40,000 to $60,000 lower than the actual property valuation. A year ago, this would have been unheard of, and now this reflects current market conditions and the impact the two significant factors are having on the Brisbane property market.
Factors Affecting the Brisbane Property Market
In my 20 years of working in property finance, investment property sales and as a Buyers Agent I have come to get use to how most of the population reacts to events on a national level. Firstly Elections, elections always slow the property market down as investors wait to see which government will be in power for the next four years and what the anticipated changes their policies will have on their taxes and the property market. Most people will stop buying or investing in a property if a significant event happens.
We are through the election now and into the following major factor affecting the property market: interest rate rises. We have had two rate rises this year and anticipate a third rate rise within the next month. If the RBA states that they are happy with the new interest rates then we should see an increase in activity as investors are put at ease and will start reinvesting.
The problem we face is that the old monetary policy of increasing rates to keep inflection below the 3% range doesn’t work anymore. The factors affecting inflation are now global, not local, and increasing interest rates will certainly not curtail the rising costs of fuel for our cars or energy for our homes. The Australian economy relies heavily on materials imported from overseas sources, many of which have been severely disrupted by issues ranging from staff shortages in transport and manufacturing due to COVID, directly affecting housing costs and resulting in slower build times.
These are the primary factors you can see for yourself and realise that increasing interest rates to curb inflation harms the economy. We need to look at how we control inflection in a very different way in the 21st Century.
The Brisbane Property Price Cycle
Regarding the Brisbane property price cycle, we are now past the peak and seeing housing prices drop. The reason is simple, supply and demand. For the last three years, Brisbane property has been in high demand, increasing property prices.
As soon as that demand drops, we enter into a period at the very top of the property price cycle where sellers still expect high amounts for their property, but the buyers aren’t there. They are then left with the choice of holding out and waiting for the market to return or accepting a lower price for the property. Once sellers start taking lower offers, we enter the downward side of the property price cycle and the market experiences a price correction.
This is the current market phase, the downward side of the property price cycle. What is driving this downward trend is the lack of buyers. The lack of buyers reduces demand in the local housing stock, which therefore reduces the property values. These buyers will not come back to the market till be have some stability in the RBA’s interest rate decision. We are fully aware that the RBA intends to raise interest rates by around half a per cent at the next board meeting in August. What investors need to know is the outlook. Will the RBA be happy with the next rate movement and leave rates on hold for the stable future, or will they announce the possibility of further rate rises?
If that occurs, then the market will remain flat.
Brisbane Property Price Correction
Another factor you need to consider is the rapid housing price increases we have seen in the last three years, specifically the previous 12 months. The driving factor behind the property value increases was demand. With interest rates so slow, we had more people looking to purchase a home than we have ever seen. The sheer number of people outstripped the available homes for sale, which naturally led to excessive property value increases above and beyond Brisbane’s average market growth rate.
The drop in housing prices we are experiencing now is simply a correction. Home prices will not drop below the values before the property market boom. But the market will correct.Brisbane Property Market Drivers to Sustain Higher Values.
Two market drivers will sustain property values through this price cycle. The first is the high demand for rental properties in Brisbane, and the second factor is the still relatively low Brisbane housing prices compared to Sydney and Melbourne property prices.
The Turn Around Market Prediction
Once interest rates settle, and people in the Southern States start to feel the effect of the higher cost of living, they will turn their attention to Brisbane or the South East Queensland region to relocate. The influx of immigrants from the southern states will start up again, which will place higher pressure on the Brisbane property market, which will therefore create pressure on the local housing market, which leads to increased property prices, and off we go again.
What You Need to Consider
What we need to consider when trying to look ahead and predict the future of the Brisbane property market are these crucial facts:
- Brisbane property prices are low compared to properties in Sydney and Melbourne, and we may think the Brisbane property market cannot go up any higher. Yet, we still have a long way to go compared to the median house prices in Sydney and Melbourne. If you are relocating to Brisbane, you are getting a lot of house for your money, and these people are prepared to pay good money for a suitable property. I have witnessed this first hand at auctions where I value a property at a certain amount and not even get a chance to bid as a couple of buyers from Sydney to go way past my price and well beyond not even flinch.
- The Brisbane rental market is predicted to come under even more pressure this year which will see returns on investment increase.
- Interest rates are still relatively low. Seven years ago, the average interest rate was around 5%. It’s still below that amount, and if you look at the five years fixed rates, they are still about 5%.
- Higher interest rates also mean a high rate of tax deductibility.