Property correction underway

Property correction underway

No, it’s not what you think. Prices in Sydney and nearby regionals like the Central Coast & Newcastle are not falling, but I do think they are correcting. This present boom in prices I believe is a correction following on from an extended flat period in the market from 2003/4 to 2012. The run-up in prices from 2012 to current day 2017 in my opinion, is the correction we were due to have.

For those holding out hope for a fall in prices before they buy, I’m afraid you could be in for disappointment. With 70% of the market traditionally being owner occupiers, these people don’t sell even if sitting on negative equity. They have different reasons for owing property, namely to provide shelter for their families. Loans from lenders favour this type of property buyer with the many consumer protections that come with it.

Seasoned investors don’t panic sell either. They see booms and busts as a normal part of the real estate cycle and if they hold onto property they do well in the longer term.

Interest rates have never been lower and the state government is attracting First Home Buyers back into the market with Stamp Duty relief. Listing numbers have improved (thankfully) but demand is still exceeding supply which is putting a floor under prices. Auction clearance rates are 70+% still and although the rate of price increase has slowed, prices are still rising. This is just part of a normal real estate cycle.

In summary, I don’t foresee falls in prices anytime soon, so I’d be buying when you can afford to. Feel free to call us for an obligation-free chat.

Effects of stamp duty relief for FHB

Effects of stamp duty relief for FHB from 1 July 2017

The last time the NSW government did this, it was at the early stages of a boom around the time of the GFC. It had the effect of increasing house prices by at least the stamp duty and FHB grant amounts. This time however, they are introducing it at (what might be guessed at a point) towards the end of a boom. If the market was due for a breather in capital growth terms, this will probably keep the market fired up. We’re starting to see more listings with prices hovering around $650K and FHB getting finance pre-approvals in order.

What we see as buyer’s agents when competing with FHB’s is their emotions getting in the way of good judgement along with a healthy dose of FOMO which often leads to them overpaying. Selling agents are seen to be taking advantage of the FHB’s inexperience also. In our (obviously biased) opinion a FHB would do well to use part of the savings they make on not having to pay stamp duty to hire a professional buyer’s agent on their team to level the playing field.

 

State of the market report – 31 August 2015

Back at the beginning of Winter in June 2015, I posted a blog on why I did not see Sydney being in a “bubble” https://www.propertunity.com.au/is-sydney-in-a-property-bubble/

At that time we had experienced 7-8% in Sydney for the year to date. Since then we have experienced a very busy Winter period. We put this down mostly to demand exceeding supply. New listings numbers were down almost 10% over Winter compared to same period last year in 2014. And 2014 was down on new listings approx. 20% on the same period the year before that, in 2013. Demand however has increased. This had led to median sale price growth of 1.1% in August which translated into 7.4% over the last quarter and 17.6% over the last 12 months (source – RP Data), even higher than the 15% I predicted at the time.

Central Coast & Newcastle market update:

Capital Growth is (and will be) due to the ripple effect coming out of the Sydney property market – which shows no immediate signs of slowing down. Whenever Sydney gets heated, areas within a 1 hour commute also do well. So we see Wollongong to the South, Blue Mountains to the West and Central Coast (Gosford & Wyong) to the North, all going through a growth cycle (of some 18-20% in the last 12 months). Even if Sydney stopped dead in its tracks right now, today, it would take 6-9 months for the market to peak on the Central Coast. This is borne out by the fact that when Sydney peaked in 2003, the Central Coast did not peak until 2004.

The Lower Hunter is a different story, and has been affected by the slowdown in the mining industry. Rents have also softened in this area.

Newcastle has been a strong performer for a number of years, and I don’t see that changing. It has really come into its own since BHP moved out and the waterfront foreshore development has occurred. The inner CBD suburbs are going through a gentrification process and are always in high rental demand and sales demand.

So what’s in store for Sydney now? In 5 words – “Spring will be the test”.

On the negative side of the “continuing growth” equation we have the big 4 banks plus Macquarie slapping investors with some small token interest rate rises of between 0.1% and 0.4% in a bid to satisfy APRA’s requirements on “responsible lending” and for the banks to hold higher cash reserves. (In my conversations with brokers, they are all busy putting deals with other lenders who are more investor friendly – so I expect this move by the big 4 will do nothing other than lose them some market share). We have linked to a blog of one of the brokers we deal with, if you want to read up on the recent lending changes at http://www.passgo.com.au/blog/25-mortgage-broker-canberra-blog/90-recent-lending-changes.html

Anecdotally, taking to selling agents, they are bringing on more listings in the next few weeks of September – so supply is starting to come and will therefore meet some demand.

Foreign investors are being more carefully watched by the FIRB now too. Although to be fair, non-residents were always restricted to buying brand new (overpriced) Off the Plan properties.

The Chinese stock market meltdown may be having an impact of confidence? This may also lead to more investment money finding a safe haven in the Australian real estate market. This is exactly what happened in Australia after the 1987 stock market crash – we had a property boom.

Auction clearance rates have fallen back from the mid-high 80%’s to the mid-70%’s (76% last week-end). BUT it was only a few years ago that anything over 65% was considered to be “boom” conditions.

On the positive side:

As reported by the SMH  http://www.smh.com.au/nsw/nsw-adds-more-jobs-in-six-months-than-the-rest-of-the-nation-combined-20150816-gj088g.html NSW has added more jobs in 6 months than the rest of the nation combined, so we have strong employment growth.

Interest rates (despite the recent small rise for investors) are still historically low – so the cost of money is still exceedingly cheap.

The Australian share market has recently had all its gains since the GFC wiped out – so investors are wary and when they get concerned, they traditionally go to the perceived security of “bricks & mortar”.

Whatever conclusions you come to, what is clear is that capital growth rates cannot continue at the current pace forever. So at some point they will moderate, we just don’t know when that will be. What is important is your selection criteria for property purchases. This will stand the test of time, when you buy the right type of property, for the right money, in the right location. This is the value that a well experienced Buyers Agent can bring to the table.