What is a Housing Bubble and how does it affect your ability to invest wisely?
A housing bubble is a period of rapid growth in property prices, followed by a drop in prices back to the original point. For example if the market started at $300 000 and inflated rapidly and unexpectedly to $600 000, then fell over time to the $300 000 mark or below, this cycle could be termed a ‘Housing Bubble’. These cycles generally begin when housing demand increases, in the face of short supply, which takes a relatively long period of time to replenish and stabilise. However, bubbles form in many different ways and no two are the same. The market is typically inundated with speculators, wishing to make quick profits from short term buying and selling turn around. This pressure further inflates demand until at some point demand decreases or stagnates at the same time as supply increases and results in a sharp drop in real housing prices… i.e.: the Bubble bursts. Typical ‘Supply and Demand’ economics. This cycle may take some time to occur and usually once supply outstrips demand, the market goes into a ‘correction’ phase. There are those industry professionals that suggest that when property prices rise in this way, it is in fact not a ‘bubble’ as house prices have the potential to keep rising in line with income growth. The bottom line is, whether the current Sydney market is deemed a ‘bubble’ or not, all current indicators point to the fact that the Sydney property boom cycle is about to bust and it is more than time to look elsewhere. As discussed in our previous blog (Brisbane Property Market Set to Grow), the recent BIS Shrapnel report suggested the three year outlook for Sydney does not justify the current level of frenzied spending. Figures indicate the median Sydney house price by June 2018, will only be 2% higher than it is today, still under the $1 million mark. However, improvement in affordability in Brisbane will spur stronger growth. Brisbane apartment prices are set to be higher in June 2018 than they are today. Brisbane is the only capital city flagged in the BIS Shrapnel report, to experience apartment price rises in the next three year period. In fact, a median house price growth of 7% for the next year and 13% over the forecast 3 year period. So, whether or not the professionals agree on what to call this type of property cycle, they do agree on the fact that all indicators are pointing to Brisbane as being a wise choice for property investment.