Depending on where you are, chances are good that the house for sale down the street will be bought by a real estate investor…
And not by a first time home buyer.
Don’t be concerned about that fact…
Better yet, you should be quite happy about it.
The latest housing market statistics tell us that investors are driving the real estate market.
That should make you very excited because traditionally, in the initial stages of a housing recovery, investors lead the way…
First time home buyers will follow later on.
Right now, first time home buyers are still a very low percentage of the market–
only 3-4 per cent in NSW at the moment…
Normally, first time buyers will make up 10 or even 15 per cent of the buyers…
It may well be that some first time buyers are not buying homes, but are investing in property instead while renting an apartment…
Now where have I heard that strategy before?
Of course, huge investor demand isn’t the absolute case everywhere. Like I said, it depends on where you are…
As you might expect, investors are scooping up the most properties in the most desirable markets first…
That would be NSW, where investors make up more than 50 per cent of the market right now…
And that proportion is rising.
But even in other states like Western Australia, for example, as well as Queensland and Victoria, show an investor-driven real estate market recovery…
Investor purchases in those areas are around 35 per cent, which is still pretty high.
These statistics should tell you what you need to know…
That the housing market is not in a bubble…
But rather, it’s in a long overdue recovery mode.
Yes, I know the media are having their jolly good fun pointing at rising prices and telling everybody that the sky is falling…
They point to the United States and Europe as the perfect examples of where we’re headed…
But you know what the media is all about, right?
The media are not news organizations as much as they are sales and marketing organizations.
Remember, they make their money, their earn their profits on selling advertising spots…and maybe a few copies of newspapers and magazines here and there…
Most media writers don’t even had the faintest idea of what a real estate bubble is or what causes one…
Because most of them went to journalism school and have no idea about economics or how the economy works.
Seems a bit daft, really, to have largely uninformed people telling the rest of us why we should be afraid…
Until you realize that they’re truly in the business of fear…
Fear sells newspapers and keeps your eyes glued to the television screen…
Which is exactly where they want them!
Now, let’s talk about the “real estate bubble” that isn’t there…
First, understand that real estate bubbles –or any other asset bubbles, for that matter—usually come about at the very end of the cycle…
The end of a cycle is when supply has so overwhelmed existing demand that homes are no longer being purchased…
That normally occurs when too many houses have been built…
When that happens, prices fall, and fall some more.
Generally speaking, is that the case in Oz?
Sure, a bit of a glut remains in places like Adelaide, but even those areas are seeing supply slowly but steadily being taken up.
But for most of the capital cities and their surrounding areas, new housing projects and planned communities haven’t been built in several years…
All of that came to a dead stop at the beginning of the GFC.
Remember, when the GC hit, banks stopped lending, existing projects just sat there, half-completed as construction firms shut their doors and investors abandoned their developments…
So today, after years of shifting populations to these capital areas, immigration and a new generation coming into their adult years…
There definitely exists a shortage of homes and apartments in those capital city metropolises…
As well as several years of pent up demand.
Now, when you add in foreign investors, especially from China and other parts of Asia, who see the Australian economy rebounding and a rising market demand for housing, what do you get?
High demand!
What effect does rising demand and have on prices?
Prices rise in response to high demand.
Now then, what happens when higher demand meet a low supply?
That’s right—supply tends to grow…
People get back in the business of building houses and blocks of flats in response to the higher demand and higher prices.
Finally, add in the cost of development projects…
When costs are high in terms of labor and the cost of money (interest rates), supply doesn’t respond as quickly.
But when costs are low, such as the very low interest rates we see in Australia at the moment, development projects and housing estates tend to get built much quicker…
And that is starting to happen, and has been happening in places like Sydney, Melbourne, Brisbane and Perth…
Remember, it doesn’t happen everywhere at the same time or at the same pace…
Costs to build differ in different areas and the economy of one area may lag a bit from another…
But that, my friends, is what opportunity looks like.
So understand what the media’s job is, understand how the economic laws of supply and demand work, and then get busy with your real estate investing career…
It’s an investor’s market!