Anticipating the property market has been tricky for both vendors and buyers during the last couple of years. Is the market still losing value or is it finally stabilising? Is it time to buy? Is it okay to sell? In addition, finance has not only been harder to come by, the amount we can borrow has shrunk considerably. However, on the flip side, with interest rates at record lows, finance is as cheap as it’s been since the 1950s. So, if you’ve been wondering what the property market is doing and what you should be doing too, you’re not alone.
What’s the current situation?
Until recently, with property values falling in many areas around Australia and the promise of further falls taking the wind out of vendors’ sails, it’s been a buyers’ market. However, consistent property price declines have meant that most vendors aren’t selling now unless they really have to, which has led to stock levels dropping significantly, particularly in Sydney and Melbourne. The number of new listings is currently around 30 per cent lower in Sydney and Melbourne and 20 per cent lower in Brisbane and Perth than last year.1
Over the last month or so, we have seen a number of indicators that the national property market may be starting to move into positive territory. August saw a rise in national dwelling values of 0.8 per cent, the first monthly increase since October 2017. Sydney property prices rose by 1.6 per cent, with Melbourne, Canberra, Hobart and Brisbane experiencing monthly price gains of 1.4 per cent, 0.8 per cent, 0.5 per cent and 0.2 per cent respectively.2
Auction clearance rates in Sydney, Melbourne and the ACT have also been rising. The first week of spring saw clearance rates of 81 per cent (NSW), 78 per cent (Victoria) and 94 per cent (ACT). These figures are well above what they were this time last year.3
What can we expect next?
Spring is traditionally a time when vendors put their homes on the market and buyers come out in droves in the hope of finding the right property. Now that the ‘selling season’ is upon us, the recent sale price increases and high clearance rates suggest that more buyers are indeed on the hunt, and in fact, demand is outstripping supply. This now tips the balance of power in favour of vendors.
While some vendors will remain reticent to sell while prices are still relatively low, other vendors will try their luck throughout the spring selling season, particularly given the positive sales figures and the promise of all those buyers lining up, chequebook in hand.
If buyer demand continues to exceed supply throughout spring and into summer, values could continue to climb. However, according to CoreLogic’s head of research, Tim Lawless, buyers are constrained by the low availability of credit.4 Furthermore, any significant price rises are likely to be tempered by the RBA. Wages growth is still fairly sluggish, so affordability concerns remain in Sydney and Melbourne. The regulator doesn’t want a rerun of the last housing price boom, so if the RBA feels household debt is increasing too much (driven, in part, by higher property prices), it may reintroduce policies to further tighten the reins on mortgage lending. In fact, Lawless believes the increase of stock over the spring months may exceed buyer demand due to the already tough credit conditions for borrowers.
Overall, it is likely that this tug of war will keep property markets reasonably well balanced where prices are fair with neither buyers nor sellers holding the balance of power exclusively.
What about the US trade war with China?
The ongoing US trade war with China has some buyers spooked – and rightly so. We are inextricably linked economically to both China and the US. If the trade war escalates and trips a recession in the US, our own economy could be next. Low wages growth and slow retail sales in Australia are making us feel more vulnerable to these external influences. A recession could cause mortgage stress and no-one wants to take that on.
What’s really happening in our economy?
Our economy is actually much stronger than the media would have us believe. According to property expert Michael Yardney, the following factors should keep our economy – and by extension, our property market – chugging along pretty well:5
- Employment rose again in July; it has risen in 33 out of the last 34 months.
- Total jobs increased by 44,000 (even though economists expected an increase of only 14,000) and full-time jobs rose by 34,500.
- The labour force participation rate rose to a record high of 66.1 per cent.
- Almost a million new jobs were created during the past three years.
- The NAB business confidence index increased to 3.9 points in July, up by 1.6 points from June.
- Consumer confidence rose by 3.6 per cent in August and is now near the long-term average.6
- We haven’t seen the typical precursors to a recession, such as an extreme boom in consumer confidence or global inflation, or a surge in global debt and consumer spending.
Many parts of the Australian economy are going well, including infrastructure spending and demand for exports.
According to Yardney, even if we did have a “technical recession” (i.e. two consecutive quarters of negative economic growth), it is unlikely to affect property markets. Thanks to strong employment growth, people are unlikely to default on their mortgage repayments. In addition, the low interest rates and responsible lending policies means most borrowers are not over committed.7
Suffice to say, both buyers and sellers should be feeling pretty relaxed. So, in between getting some rays over the next few months, make sure you keep a close eye on property listings. Don’t forget to speak to your Smartline Adviser too to make sure you have your finance sorted; that way you’ll be ready to go as soon as the right property come on the market.
SOURCES: 1https://www.abc.net.au/news/2019-06-24/sydney-housing-push-for-more-medium-density-property-development/11238970, 2https://www.abc.net.au/news/2019-09-02/house-prices-surge-in-sydney-and-melbourne/11469744, 3https://www.realestate.com.au/auction-results/,4https://www.abc.net.au/news/2019-09-02/house-prices-surge-in-sydney-and-melbourne/11469744, 5https://propertyupdate.com.au/would-the-feared-recession-crash-the-australian-property-market-property-insiders-video/?utm_source=Michael%27s+Daily+Commentary&utm_campaign=5e4aaa9b04-MY_DAILY_EMAIL&utm_medium=email&utm_term=0_8ac08e5c4d-5e4aaa9b04-501865453, 6https://www.afr.com/policy/economy/consumer-confidence-bounces-on-rate-cut-pause-20190814-p52gy7, 7https://propertyupdate.com.au/would-the-feared-recession-crash-the-australian-property-market-property-insiders-video/?utm_source=Michael%27s+Daily+Commentary&utm_campaign=5e4aaa9b04-MY_DAILY_EMAIL&utm_medium=email&utm_term=0_8ac08e5c4d-5e4aaa9b04-501865453
DISCLAIMER: The information contained in this article is correct at the time of publishing and is subject to change. It is intended to be of a general nature only. It has been prepared without taking into account any person’s objectives, financial situation or needs. Before acting on this information, Smartline recommends that you consider whether it is appropriate for your circumstances. Smartline recommends that you seek independent legal, financial, and taxation advice before acting on any information in this article.