Housing boom is losing steam: what does it mean for the property market?

Recent reports revealed that in February of this year, more units were sold than houses in almost all major Australian cities, which was the complete opposite situation last year. Due to the Andrews Labor Government building support and incentives, the housing sector experienced a major boost in house property purchases. Back in November last year, there was a huge increase in property prices, and yet demand was still skyrocketing especially by first-time home buyers. The growth encouraged investors than can be felt this year. For this year, seems like the housing boom is losing some steam with residential units starting to garner attention.

According to Domain's auction report, the affordability constraints, as well as the investors' return, meant that clearance rates for units were higher than houses in major cities like Sydney, Brisbane, Adelaide, and Canberra. However, houses remained attractive in Melbourne with the highest vacancy rate compared to other capital cities. But the reports also showed that the property market was overall not as strong in Australia's two largest cities.

Due to an increase in volumes and a decrease in competition, clearance rates are declining. Melbourne has recorded the highest number of homes scheduled to go to auction for February according to Domain. Both Sydney and Melbourne recorded drops in clearance rates from a year ago, which isn't exactly a bad thing according to experts. This shows a turning point within the Sydney market – more choices for buyers due to better buying conditions, plus softening of clearance rates. This time, units are outperforming houses.

As previously mentioned, buyers in Melbourne still prefer houses, even after the world record lockdown. People crave extra space, extra room, and an outdoor space where they can start a garden according to experts. However, residential units are starting to get more attention with the increase in residential units in Melbourne's inner-city suburbs.

Buyers now are fortunate because they have so much to choose from, compared to the previous years. The only thing that buyers of residential units should also consider is the pressure on rents. But even though the housing market has outgrown the apartment market, from an affordability standpoint, people would choose apartments over houses – especially now.

Now that international borders have been opened and with the tightening of the vacancy rate, residential units are attracting investors again. However, many buyers are still reluctant about pushing past prices. Seller expectations affect clearance rates and the only way for the rates to rise is if the sellers understand that the market is currently operating more equitably. As investors, good clearance rates are what we're after and what we want to see.

Right now, experts are pointing out that the kind of buyers in the apartment market is either self-managed or those that have been able to build equity in their home during the past year. This means that most of the investors are parents that are looking into investing in property rather than traditional ways of investment or share market options.