By Guest Blogger, Andrew Bell, Chairman, Ray White Bell Group
Chairman | The Ray White Surfers Paradise Group
QLD Board Member | Real Estate Institute of Australia
The five-year property boom has finally reached its peak and is well overdue for a pause. So often, the end of a peak in the property market cycle is an overnight event that immediately turns the market on its head, such as the 1987 stock market crash or the collapse of a major financial institution triggering the Global Financial Crisis. Whilst other ends to cycles have been more moderate, with more of a slowdown than a collapse, everyone was wondering what was going to be the tipping point for our most recent, pandemic-inspired real estate boom. Well, now we know.
It wasn't some catastrophic overnight event that usually does enormous damage and takes years to recover from. Rather, it has been a number of events that have had a cumulative effect. February 26 saw the release of the latest CPI figures, which told us inflation was not under control and had actually broken out once again. It reminded us all of how challenging the cost of living was and that we could expect further increases in the cost of everything we consume. Then the Reserve Bank moved quickly with three interest rate rises. We had the outbreak of war in the Middle East and the daily news about how that was going to affect oil prices and add to price rises on just about everything we touch. Then came the announcement by the Federal Government of changes to taxation, affecting not only real estate but pretty much every type of investment we make.
So then we entered our winter season, which is traditionally always the slowest period of time in the real estate market. Clearly, the accumulated effects of inflation, three interest rate rises, war in the Middle East and changes to taxation were just too much for people to deal with. The big question for everybody was: "How's this going to affect me?" For most, it meant doing nothing right now while they tried to figure out what was happening and what was best for them.
I'm sure we've all heard reports about how much the market has changed, but there's almost no real-time data to say exactly what has happened and, most importantly, how it has affected different market sectors throughout Australia. What we can see is that there are some parts of Australia that have been deeply affected in 2026, not just because of the factors mentioned above, but because of factors peculiar to those individual markets. For example, the Victorian market has been one of the worst-affected real estate markets, largely because of a lack of confidence in economic decisions taken by the Victorian Government, including higher land tax and the like. Sydney has also been knocked around, yet markets such as Western Australia and Queensland have held quite strongly.
One of the key barometers used to measure the strength of the market over the last couple of months has been auction results. During the recent boom years, auction results saw sales under the hammer in the high 70 per cent range and, from time to time, into the 80 per cent bracket. Reports now are telling us that around the country, most auction results are between 40 and 50 per cent. What you don’t hear about is the percentage of properties that sell within the week or two following the auction. A very high proportion of the properties that haven’t sold under the hammer, do sell in the week or two following; and so the real auction success rate is for the best real estate companies, more in the 75%+ range which is considerably higher than the success rate of sales by non-auction properties. We also hear reports of price drops of 1, 2 and 3 per cent, and in some places even more. But a lot more analysis needs to take place to really understand what is happening with prices.
When you hear about price falls, they are usually attributed to the median sale price. That can be heavily influenced by what part of the market the majority of sales have occurred in during any measured period. If there are a lot more sales at the top end, it pulls up the median. If more properties are selling at the bottom end, it can pull the median down. So it is still too early to have sufficiently good intelligence to really know what is happening on that front.
There are two things that are going to be the major drivers of our real estate market moving forward for the foreseeable future. The first is consumer confidence. That's really what has pulled buyers back at present. Interest rates are actually not very high compared with interest rate settings over the last 50 years. We're also seeing people become much more settled around the taxation changes. In fact, we're seeing investors back in the marketplace and property buyers in general starting to become more active. Attendances at open homes have almost doubled in the first two weeks of August compared with inspection numbers during July.
We're also seeing increasing numbers of economists, and even CEOs of banks, suggesting interest rates will not go up any further, which is bringing comfort to buyers. Most people have now figured out how the taxation changes might affect them and are becoming more comfortable about proceeding with a purchase. And all of the worst predictions about oil supply as a result of the Middle Eastern conflict don't seem to have come to fruition. We humans have an uncanny way of finding ways around problems. There hasn't been the petrol rush that we were told to expect, and fuel prices have not gone up anywhere near the levels that were predicted.
All of these factors relate to consumer confidence, which is what really caused the switch in the market. So, as we see consumer confidence returning, we'll also see more buyers returning.
The second fundamental factor is the supply of new properties. Despite all of the hoo-ha from our Federal Government about new housing supply, it simply hasn't happened. And when there's a slowdown in the market, it makes developers even less confident about building, never mind dealing with a 51 per cent increase in building costs since 2019. The bottom line is that we simply can't get enough properties built. We can't get development sites purchased and developments built that are going to deliver affordable properties.
Having been through eight real estate cycles in my 50-plus-year career, I see the current downturn following very similarly along the lines of most of those previous cycles. The upswing was longer, but that was partly the result of a lag in price growth during the second half of the previous decade and, of course, the unique factor of COVID. The COVID period drove people to change their housing needs, putting a greater emphasis on where we live and the type of property we live in.
Unless there is yet another significant shock to our economy or some major worldwide event, what we're going through now is simply a breather, somewhat of a mild correction phase. What's going to come into play now is a battle of the wits between buyers and sellers. Buyers do have the upper hand at the moment and can negotiate on price for the first time in some five years. However, most sellers aren't under any financial pressure and can simply wait out this period. They don't have to sell until they believe the market has stabilised.
In other words, many buyers will think they can wait another year or so and prices will be lower. Whereas many sellers are predicting that interest rates will start to drop next year, buyer activity will pick up, and they'll simply wait for that period of time. We'll see who's right.
History has told us, from when records were first kept, that prices will go back up again. It's only a question of when. Buyers therefore have to be very careful that they don't miss this golden opportunity of getting into the market when they're actually in the best position they've been in for five years. In most cases, they can buy at prices today that are better than they have been at any time in the last six months to a year. As soon as confidence about the economy and the market starts to turn green, the opportunity to buy well will have passed.
One closing comment: if you have a choice, buy where all the fundamentals support the market. There's a reason why Western Australia and Queensland, and particularly Olympic-bound South East Queensland, are faring so well at present. They have very solid foundations in their markets. It's where the more financially secure people are moving and where so many baby boomers are taking their wealth.
These brief periods of opportunity for buyers don't surface for long in the real estate cycle and should be capitalised on. Yet it takes a person of confidence and courage to block out all the negativity that the media will put out about the market and make that bold decision to get into the market and buy.
As the world's greatest investor, Warren Buffett, famously said: "Be fearful when others are greedy and greedy when others are fearful."
Andrew Bell OAM
Chairman | Ray White Bell Group
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