What Drives Property Prices? Article - Finance Real Estate Articles

	1888 Articles Home \| Finance Articles \| Real Estate Articles	Real Estate RSS
What drives property prices?

The forces of supply and demand in two major sub-markets – owner occupiers and investors determine the Price growth in Australian residential property. Here you will find some causes which are the main reason for driving the property prices.

Author: Rich Harvey

Article Tools:

Price growth in Australian residential property markets is basically determined by the forces of supply and demand in two major sub-markets – owner occupiers and investors. Owner occupiers tend to focus on lifestyle choices and affordability criteria that will best satisfy their needs. Investors focus on net returns – resulting from either capital gains or cashflow (or both).

Population & Migration growth: A growing population means more roofs over more heads. Australia recently passed the 20 million mark of which over 4.16 million live in Sydney. Our low birth rate is supplemented by immigration which will see our cities continually grow.

Interest rates: The cost of credit is a key driver in determining price growth. This factor is closely tied up with affordability as the cost of finance determines serviceability and the amount that people can borrow.

Demographic trends: The ABS report that the number of households in increasing but the average household size (now at 2.5 persons per home) is becoming smaller with families having less children, more childless couples, divorce rate increasing, more one parent families and other social trends.

Construction costs: Increasing costs of labour and building materials has a direct effect on house price growth. As the demand for housing increases, construction activity increases as will the demand for trades and materials.

Market sentiment: How people feel about the direction of the property market and how they respond to media reports plays an important role. People like to avoid risk and feel safe about buying property. Nobody wants to pay too much for a property. When market sentiment is high, boom periods tend to follow.

Affordability: The demand for property is closely related to affordability. The simplest measure of affordability is the percentage of average wages used to service the average mortgage. If most social groups find that housing is unaffordable, then this will reduce demand for housing. This is exactly what is happing at present in Sydney and Melbourne.

Land shortage: Sydney provides the classic case of land shortage. Land shortages have consistently driven property values as demand outstrips supply. Planning future land releases and providing adequate infrastructure do not come overnight. This is a perennial problem that the State Government has been grappling with for decades.

The tireless forces of supply and demand will continue to work its way out in the marketplace regardless of market sentiment. The head of Australand Property Group, Brendan Crotty, is predicting an upswing in housing demand is likely in the next 6 to 9 months. This view is based on the key predictor of housing demand being growth in full time employment.

The Real Estate Institute of NSW has just released the latest figures on prices from the March quarter 2005. Rental vacancies are declining and now stand at around 2.2%. As this rate declines further it will put pressure on rents to rise. In Sydney the total volume of sales is down significantly since the last December quarter by over 25%. Sydney house prices in Sydney increased slightly by 1.2% over the quarter to a median of $511,000. Similarly, unit prices also increased around 2.7% reaching a median of $380,000.

The current real estate market can be characterised by:

• Prices are falling or increasing only slowly
• Less investors (less competition)
• There are generally fewer buyers
• Properties are on the market for longer
• Rental vacancies declining/ more people renting

Albert Einstein suggests that in the middle of difficulty lies opportunity…….. the same applies to the property market. With a down property market opportunities abound! The key is to recognise value and only purchase properties which have the correct fundamentals for:

• future capital growth
• adding value/ renovation
• development potential
• strong rental yields.

About Author

The author is the Founder & Managing Director of a company and he has great interest in Sydney Real Estate Property Buy and Buyers Agent. For more information visit http://www.propertybuyer.com.au/.

Article Source: http://www.1888articles.com/author-rich-harvey-9059.html

What drives property prices?