Six signs to look for if a property crash is on the way: David Koch

Six signs to look for if a property crash is on the way: David Koch
Six signs to look for if a property crash is on the way: David Koch

Finance commentator and Channel 7's Sunrise breakfast host, David Koch has offered six signs which show the housing market could be about to change.

"The recent Reserve Board minutes showed it was quite comfortable with the state of the property market," he told the Telegraph.

"Some international commentators however are predicting an imminent crash in values."

He said that rather than speculate, the more important thing is to understand the major signals which could points to a change in the property market.

1. Rising interest rates

"Borrowing money has never been cheaper," David says.

Record low interest rates have meant property buyers have been borrowing more for less.

But this period of easy money can lead to a financially deadly "debt trap" for those who overdo it.

A rise in interest rates on a four percent home loan doesn't sound much until you realise it would mean a 50 percent jump in repayments.

2. Rising unemployment 

With 25 consecutive years of positive economic growth, the job market has been pretty solid and unemployment has been relatively low.

That has been good news for the property market because stable employment gives buyers the confidence to get into the market or trade up.

If the economy slows, the job market deteriorates, unemployment rises, incomes become uncertain, confidence falls and property prices suffer.

3. Falling auction clearance rates

Auction clearance rates are a regular, consistent barometer of a property market health.

It's an indicator on the balance between buyers and sellers, which is the fundamental supply and demand foundation of all property markets.

The higher the clearance rate, the healthier the market as it indicates there are plenty of buyers competing for stock on the market. 

4. Rising vacancy rates

Investors buy property for both capital growth and income from rents.

The key to making an Investment Property stack up financially is they must have tenants paying rent.

Rising property vacancy rates means there aren't enough tenants to go around so investors will either have to slash their rents to attract tenants or sell the property.

5. Falling rental yields

Linked to increasing rental vacancy rates.

A property is valued on the rental income it can produce and its capital growth prospects from rising values.

If vacancy rates rise, landlords will have to lower their rents to attract tenants or the property will be vacant and earn no income.

6. Above-average construction numbers

 Property is about demand and supply.

If construction outstrips demand then values will fall as sellers compete to attract buyers.

That's the current concern about the Melbourne, Sydney and Brisbane inner-city home unit market.

A huge amount of construction is under way and there are fears that when these developments are finished, there will be an oversupply and values will fall.

Tags: 
Housing Market Property Crash

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