Winter 2016, just passed has seen:
• A softening rental market
• A severe shortage of quality stock
• Rising sales prices
In relation to a softening rental market, some of the reason can be explained by the number of investors in the market buying properties to rent out.
Normally investors are 30% of the market with owner occupiers the other 70%. Towards the end of last year, in NSW, investors were 60% of the market (double the normal) and this has moved back to approx 50% now (still over-represented). This has 2 x effects:
1. More available rental properties on the market (so rents soften in response to greater choice and availability). It takes some time for this additional rental stock to be tenanted – but it does wash through the system and normality returns.
2. Shortage of stock on the market. When an owner occupier buys a house to live in, they normally also sell their current house, so there are 2 transactions. When an investor buys a house, he/she just buys a house, there is no corresponding sale. This goes some way to explain why stock on the market in Sydney is at the lowest levels it has ever been in some areas. Add to that the fact that many owner occupiers are afraid to sell first, in case they cannot find something to buy and you have a recipe for low supply coupled with high demand – and we know what that leads to – rising prices.
This time last year in 2015, many reports in the media were calling the end of the Sydney boom. I said at the time that this was premature and did not reflect what we were seeing at the coal-face every day. Median prices did retract slightly in the last quarter of 2015 but 2016 has seem ever increasing auction clearance rates – back over 75-80% and price growth of 6.8% to date….hardly a bursting bubble!! The recent cut in interest rates by the RBA will see even cheaper credit available to purchasers and will have the effect of putting a floor under prices at the very least.