Spring Property - Bounce or Bust? - September Market Update
September 1, 2022 / Written by Rich Harvey
Written by: Rich Harvey, CEO & Founder
I love this time of year! Getting out of cold winter and feeling the warmer spring air and sunshine - it just seems to breathe new hope and positivity into everyone.
But will the spring weather have any impact on the property market and buyer and vendor sentiment? Rising interest rates has been the biggest drag on consumer confidence, but how much further will they rise? Will we see a significant bounce in listing volumes, or will we see the market pricing continue to take a dive?
Our team of buyers advocates across Sydney, Melbourne, Brisbane, Gold Coast and Newcastle have observed that most buyers are approaching the market with extreme caution. This hesitancy to consider buying a property in a correcting market has resulted in far less competition on properties listed for sale. Rising interest rates have really curtailed borrowing capacity which has translated into reduced confidence and a fall in property prices, particularly in Sydney and Melbourne (down 7% to 15%). The Brisbane and Gold Coast markets are just starting to turn (down 3% to 5%).
Having been through 5 long property cycles, I have learned to look for the early signals that indicate the market is either bottoming out or has further to fall. The media would have you believe that property prices are falling everywhere, and we are headed for a market crash - but it is vitally important to remember when watching the evening news, that there is not just one single property market.
I always find it strange that the majority of people follow the herd. If everyone else is sitting on the sidelines, then that seems to be the right thing to do. If everyone else is jumping into the market, then that appears the right road to take. But the really savvy property buyer will take a counter-cyclical approach. The best time to buy straw hats is in winter for example.
The difficult news to swallow at the moment is that inflation is still having a significant impact on the cost of living, and that our mortgage repayments are rising quickly. But then again, we have been living with record low interest rates for just over two years now and the interest rate cycle is now normalising. I believe the RBA cash rate will settle somewhere between 2.5% and 3% - which translates into a discounted variable mortgage rate of 4.5% to 5% (which was where it was sitting for many years).
We recently interviewed John McGrath, CEO of McGrath estate agents, and he believes that the market has fallen up to 15% in Sydney and Melbourne, and we are about 2 – 3% away from the bottom of the market. McGrath suggests that we are already most of the way through the correctional phase and there is a great window of buying well within the next 6 months to get amazing properties at a discount. He notes that high quality properties are still selling for good prices without much discount.
This is exactly what Munro Donen, Principal of Propertybuyer East, in Sydney’s Eastern suburbs is also seeing. Agents are constantly providing price adjustments during campaigns and there are excellent opportunities to buy well. Alexander Phillips, Principal Partner at PPD, says high quality property is still selling well and only about 5% off the peak of the market. The volume of listings is likely to be lower during spring as some vendors wanting premium prices will not achieve record breaking results like we saw during Covid. They are recommending their vendors come to market in early spring to capitalise on motivated buyers before the market corrects any further.
Talking of listing volumes, CoreLogic is recording that total listing volumes are around 25% below their 5 year average – See below:
New listing volumes have seen a rise compared to the same time last year, and we are likely to see further increases as we head into spring (see below):
Some of the key signals that indicate the market is bottoming out is seeing auction clearance rates stabilising in the high 50% to early 60% range. Another signal is rising numbers of bidders at auction. At present we are seeing just 2 or 3 active / genuine bidders at auctions (if it even makes it that far- as often we can secure a good pre-auction offer for clients). Another signal is rising attendances at open houses (this time last year there were queues of 50 people at open house – whereas today you might get 3 to 7 groups through). The most obvious signal is seeing property price declines cease and stabilise month by month (however the monthly data index suffers from a serious time lag of about 3 to 4 months).
So what’s the verdict? Will the property market bounce or bust this spring?
I believe we will see interest rates stabilise by Feb or March 2023, then we will see property prices stabilise for some time. During spring we may see a further contraction of prices by around 5% - depending on the location. We are likely to see a slight “bounce” in the number of transactions – but not a bounce in prices. Nor will see a dramatic crash! Even after all the future interest rate rises, we are likely to see prices still ahead of where they were prior to the Covid period.
Buyer sentiment has switched from Fear Of Missing Out (FOMO) to Fear Of Over Paying (FOOP)!
During this market downturn, we are able to save our clients between two to even ten times our fees! This means you can engage our buyers’ advocacy services and end up saving an absolute packet.
If your strategy is to consider delaying your buying plans, then you are simply like one of the herd. If you understand the benefits of counter-cyclical buying during a market correction, then you can potentially buy extremely well over the next two to three months during the spring selling season. Please reach out to start a conversation about your property plans with my super-helpful team at Propertybuyer on 1300 655 615 or click here to make contact today.
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