The Pipeline
  • 19 November 2017

The Pipeline

The price of Goods and service is set by the law of supply and demand. That's why you know my banana theory. When there is a cyclone there is a shortage of bananas yet the demand is always there. The limited supply forces the price up and up.

Property follows this same law. That is why it's so difficult to predict accurately ahead property prices because of unknown future supply.

But here is the trick. Knowing the supply now gives you a good guide to the likely supply up or down in the future. For example look at Sydney and Melbourne.

Supply is at a historical high. That means there are a lot of bananas in the store and there should be now a lowering of prices. This, in turn, will disincentive other builders to move in and supply that market.

This simple law of supply and demand alluded the boffins at APRA but wrongly were alarmed at particularly Sydney's price rise in 2015 & 2016 and worked to try and limit supply. This guaranteed that prices continue for an extra 18 months longer than they should have.

In fact, they will continue to rise now but then will return to their normal pattern of many years of sideways movements. What's underpinning the strength of the Sydney market, is the ongoing population increase which is above the national average.

Even greater demand is in Melbourne from the population increase. That is why their price growth will continue for longer than Sydney.

The complete contrast to this is the Perth market. Here you can see where the supply was great, but now it's not. Then increased supply swamped the market and reduced prices. More and more builders were disincentivised to supply the market and the supply has dropped dramatically. What does this tell you?

It means that soon that market will move into under supply. Soon tenants will be the canary in the coal mine. Soon they will start bidding rents up. Soon after that, those buying property will have to bid the price up too, to get access to the limited supply from then available properties.

So these cycles continue up, down and sideways.

So looking at all the charts, where do you think there is going to be the next boom from a shortage of supply? You Club works hard to constantly search out these opportunities for you.

Please contact your Property Mentor to be part of these opportunities or contact enquiries@propertyclub.com.au for more free education.

Regards, Kevin Young

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