House prices have quadripled since the mid-1990s. Rents on the other hand haven’t even doubled - in fact, most have barely gone up 30%. Smell a correction? Even the Reserve Bank of Australia has put their 2 cents worth today and agreed. Across australia, Residential vacancy rates are hovering around 1.5%.
A collegue of mine has a first hand experience looking for rent at the moment. Every weekend she picks a handful of places to inspect. At every property she goes to, she needs to queue up with 50+ other renters. Three weeks into the process now, she is far less picky and has expanded her search region from 2 or 3 suburbs to 10+. Her current rental lease has expired and her landlord is terminating the lease so that he can up the rent by more than 30% with a new tenant. With only three weeks left before they need to move out, I think soon they will have to settle for less than they were initially hoping for… and they will be paying much more than they expected.
Apparently last year, rents rose 3.7%. This year though, I’d be surprised if the stats don’t come out at more than 15% avg. Trouble is, if rents go up, it will make investment properties attractive again. More investors come in and there’s more places for rent. However, as more investors come in, house prices start heading upwards again. As house prices go up, the RBA will try to slow this down by increasing the interest rates. As interest rates go up, the investors will need to jack up the rent to cover the additional costs.
House prices and rents, it seems, spend a lot of time moving very slowly but when they gather enough momentum they also take a lot of time to slow down. With the rental market, landlords only get to adjust their rent once a year - that’s worst than moving in slow motion. With the home owner market, people rarely sell and when they do, they compare it to the previous sale prices of similar properties in the area. With such infrequent sales, these sales are likely to be based on out of date data.
The bright side for properties, though, is that since these prices move so slowly, you have plenty of time to observe the market. With the rents going up now and a severe lack of investors in the market, if property is your thing, the next year or so is probably the best time to re-enter the housing market.
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