Bubble Proof Markets

  • Bubble Proof Markets image

When property markets boom at the level they did between midway through 2020 and 2022, it seems just about anything will sell for a ridiculous price.

The desperation to get into a rising market sees people bidding hundreds of thousands over reserve at auction and paying way too much to secure a property.

Some properties are better equipped to hold value than others, whether it’s the area they are located in, the number of bedrooms, or that they won’t need any work done on them for a long time.

Other properties that have a few shortcomings can also score big sales prices in a boom, but when the market enters a correction phase, they will also suffer a bigger fall.

The massive growth of the last two years had slowed down by the time the RBA began hiking interest rates and now, after multiple 50 basis-point increases, values have begun to fall in various markets across the country.

As inflation carries on rising and the RBA threatens further rate hikes, some analysts are predicting values to fall by more than 20%.

But an average fall of 20% would mean much bigger falls in some markets and smaller falls in others.

So is your home or property in a volatile market, or one that’s more bubble proof?

Volatile markets

In major cities, the properties most prone to price falls are generally in high rise construction hubs where there is an oversupply of new apartments.

When prices begin to go backwards and there is brand new supply coming onto the market, developers may need to cut prices to sell their new. Once prices go down on brand new properties in an area, it stands to reason that established homes in the area also see value falls.

Small apartments on city outskirts where the main type of local property is freestanding houses will also do it tougher.

Then you’ve got homes in the middle ring that sold for well above expectations during the market peak, but who’s owners overextended themselves and need to sell as rates rise and mortgage repayments become too much. Once forced sales start happening in any area, they lower the comparable sales values for other homes in their market and the value falls become contagious.

Finally, there are homes that need renovation or repair. “Fixer-uppers” perform well in a boom because they offer a more affordable entry point to an expensive market. In a down market however, no one wants to take on the work of a renovation if they are not necessarily going to improve their home’s value. And now – with building industry issues such as supply shortages, rising costs of materials and a lack of available labour – renovation projects are being abandoned or not even planned to begin with.

Resilient markets

That’s enough of the bad news. The upside is that if you have done your homework, you will have likely invested in a solid market asset. Especially if you’re a b Invested client.

In general, the most resilient markets are the ones that have steady growth over time. They are properties that suit their local landscape, are located close to amenities and transport, are in good school catchments, or in areas with strong rental demand. Bonus points if the property is newly renovated and needs no work, plus there are a shortage of such properties for sale.

By following the lead of b Invested founder Nathan Birch, and buying properties for below market value, with an upside for capital growth and with strong rental return, you should be protected from all but minor market fluctuations. If you purchase at the affordable end of the market, it’s much less likely for your asset to suddenly be worth 20% less.

And always remember that the market moves in cycles. The longer you hold a property, the more income and equity you will make.


How rate rises affect various markets


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