Despite our endless lockdowns, the pandemic-stricken property market just keeps rising. Have you ever wondered what is driving the housing boom?
There are many factors that drive the market but when you strip it right back to basics, there is only one primary component – demand from buyers. This is the timeless supply and demand equation. Prices will either rise or fall depending on the number of buyers wanting to buy and the number of available properties for sale.
Buyers however fall into two broad categories. Home buyers who buy a home they want to live in, and investors who buy a home to lease out as an investment. Let’s take a closer look at these two types of buyers to see who is most responsible for driving house prices higher.
Investors are more likely to buy with their heads, meaning they do not get emotionally attached to a property like a homeowner does. If the numbers stack up, investors will buy, if they don’t, they will move on to the next property looking for better value. There is not a great deal of emotional attachment to a property, so they will not compete for the property as much as an owner occupier would.
Home buyers on the other hand tend to buy with their hearts. If a family falls in love with a home which they intent to live in for many years, it is not uncommon to see them pay well over the top to secure it. Paying $100,000 or more, above the asking price, is not unusual. Investors on the other hand will not let their hearts take over and overpay because the returns on their investment will not be there. Also, investors tend to think more short term, whereas homeowners are longer term thinkers. Consequently, it’s the emotional buyers that drive the market higher. The owner occupiers.
Because many investors tend to have more of a short-term view for their investment, when the market starts to drop, they will not hesitate to sell and get their money out. Owner occupiers on the other hand are committed to staying in their home for the long term. When there is a downturn in the market they will not sell up and leave all that easily because they need a roof over their heads, they need a home to live in and will bunker down and weather the storm.
Remember this when you are looking to buy. Look in an area where most of the homes in the area are occupied by homeowners. When the market turns down, it’s more likely that prices in these areas will hold and not fall as much. In a down market these areas are less likely to be flooded with sellers wanting to sell, which is what drives prices lower.
Whether you are buying a home to lease or a home to live in, if you can, try and buy in an area which is predominantly owner-occupied and has fewer rental properties.
Most postcodes in Manningham will generally hold up well, as they are not dominated by as many rental properties as most other municipalities are. According to the last census, a surprising 47% of houses in Manningham are owned outright with another 33% owned with a mortgage and there are only about 19% rentals. The number of rental properties in Manningham is quite low when you compare it with the Melbourne average which is about 29% of all homes.