McGrath Real Estate has been observing a concerning trend among some of its clients who are considering exiting the property market. Paul McGrath, Director of McGrath Real Estate, shares his insights on the current state of the real estate market and provides valuable advice to those considering cashing out. McGrath highlights the significance of the economic theory of supply and demand in the real estate market and raises important questions about the future of housing in Australia. He encourages readers to think twice before making any hasty decisions and consider the potential benefits of investing in the property market during times of rising inflation.
We have started noticing some of our clients exiting the property market in the hope that they have hit the “top”. I understand how some people think it can’t get any higher. We have just enjoyed (for those who already own investment properties) an almost historic increase in property values since the start of Covid in 2020.
Whilst I am not a financial adviser (and you should always get professional advice), I ask that you consider the following information if you feel ready to “cash out” of the market.
I believe the real estate market is the most accurate test of the simple and time-proven economic theory of supply and demand. If something is high in supply but low in demand, the price goes down. If something is high in demand but low in supply, the price goes up. “Economics 101”, as some would say.
We watch TV news reports, hear the radio, or read the paper every day about a housing shortage and the associated hardships that this is having on our youth and those trying to enter the property market. It is challenging if you are out of the market, and I feel for those people. My wife and I only recently commented on how grateful we are that our children bought into the market some years ago.
With both State and Federal Governments announcing a continual push for hundreds of thousands more immigrants to come into Australia and South Australia over the next few years, one has to ask, “Where are they going to live”? To highlight this – page 23 of the Advertiser on 08/12/2023 (Duncan Evans) reports that the Australian Bureau of Statistics estimates that “South Australia is likely to register modest gains (in comparison to the rest of Australia) moving from 1.8 million at present to 2.4 million at the highest range, 2.1 million in the middle and 2 million in a low-range forecast”. Even at worst case scenario - that is 200,000 more people moving into our great State.
Proptrack Economist Angus Moore said recently “At the same time, rapidly rising immigration and sluggish home building has pushed vacancy rates to extremely low levels and fueled Australia’s rental crisis.”
With a record low vacancy rate in rental properties and low listing numbers for sale, the only option is for the market to find new dwellings for them to occupy.
So, then, build more homes? With supply line issues in building products, builders going broke every day (or so it seems) and the price to build becoming eye-wateringly high (ask anyone who is currently building), it would seem that the timeline to build these new homes is not going to be anywhere near close to matching the high demand that is already here and coming like a tidal wave.
Good news? Certainly not if you don’t already own a property. A line of thought says owning one property (that you live in) is great, but you really don’t make real money if you change over properties. The true benefit of capital gains in property is when you own more than one. In saying this, though, “When do you cash out”?
The government is trying to pull down a climbing inflation rate; however, it looks as though higher rates of inflation will be with us for some time. Most economists will agree that cash is not your friend during times of higher inflation. Assets that increase in value are much better during these times.
So what does all this mean? I genuinely don’t believe that it is time to sell yet. You have to make your own decision, but I would even ask you to consider buying another property if it fits your budget.
Lastly, the greatest regret I hear about real estate is that “I didn’t buy enough”, not “I think I paid too much”!
Please reconsider if you are thinking about exiting the market; I’m always happy to chat with you if you wish.
To talk to Paul or any of our professional sales team about buying or selling a property, or if you are needing a Property Manager to manage your investment portfolio phone our office on 8350 4200, or drop into 42 Brighton Road, Glenelg.