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Where to from here?

As I discussed last fortnight, properties in Sydney and Melbourne have experienced strong price growth since the end of May 2012. In this kind of market, it is not unusual to hear from agents, who announce that they have sold a property at so many tens of thousands of dollars above a buyer’s asking price.

However, I don’t believe that it is the skill of these agents that result in these prices, rather, I believe that it is simply the lack of supply and high levels of demand dictating these results. When the market returns to normality the agents who are able to present a property well, and who are excellent negotiators, will be the agents who continue to provide a valuable service.

So where to from here? Interest rates are at record lows, Sydney and Melbourne have experienced large price increases but many other locations are still seeing normal growth rates. It is my hope that the real estate market will return to stable growth. I believe that it is in the best interests of market participants to act rationally when thinking about purchasing real estate. There are property owners who may have experienced capital gains wishing to start realising some of those gains. When supply increases again, buyers may find that they have more negotiating power.

It seems to me that stable growth is preferable to growth that is fuelled by low interest rates, low stock levels and high levels of buyer activity. With that in mind, I believe that it would be wise for buyers to carefully consider their next move. With interest rates so low, the Reserve Bank of Australia is running out of room to move them too much lower. Eventually interest rates will have to come up again. Buyers must ensure that they have room in their budget when this happens.

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