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The Buying Frenzy: End Not in Sight - April 2021

By Guest Blogger, Leanne Pilkington, CEO,

Laing & Simmons and President REINSW

 

Real estate is a hot commodity. Fear of missing out is driving demand, auction clearance rates are at historical highs, and low interest rates are providing a blanket of security. The result is prices going up month-on-month, by significant margins, but buyers won’t be deterred. So, is there an end in sight to the current buying frenzy?

The strong levels of activity in the property market playing out each week feels spontaneous and reactive but in reality, it has been stewing for much longer than vendors may realise.

Pent up buyer demand had swelled ever since the banking Royal Commission. COVID-19 hit, and everyone naturally assumed property prices would drop, so they didn’t act. First home buyer incentives were already in place and were attractive.

Then of course, the expected price drop didn’t happen. The market held firm during the pandemic and all of a sudden people realised the negative impacts they feared were not eventuating. The limited number of properties that were on the market started to get snapped up, with the prices achieved being to vendors’ pleasant surprise.

We now know that October 2020 was the low point in the current cycle and since then, increasingly aggressive buying activity has pushed prices past their previous July 2017 peak.

FOMO is making its mark. Many buyers are frustrated that they can’t find what they’re looking for. When they do, they are outbid, adding to their frustration and fueling their sense of urgency. When prices escalate quickly in select markets it can drive fear in buyers looking at those locations.

Vendors are responding to the frenzy that has ensued and we are seeing more properties come on to the market week by week.

However, as the Super Saturday leading into Easter demonstrated, demand is robust enough to absorb the increase in listings. Incredibly, the clearance rate in Sydney for this milestone weekend in terms of volumes pushed 90 percent.

It’s important to remember that listing a property for sale is not an instantaneous exercise. Notwithstanding the emotional and lifestyle factors that go into such a decision, there’s also the need to prepare the property for sale, undertake the physical work required on the home, and secure a place to move to, or at least get a plan in place.

It takes time. This, though, brings us back to the original question. How long can current conditions last?

Vendors who want to take advantage should not be rushed – a property decision should never be rushed - but neither can they sit on their hands. It’s time to decide and with clearance rates still very strong, it appears further price growth is on the cards in the short term at least.

And when the frenzy inevitably eases, and history tells us it will, current indications are that it will be gentle.

For instance, we have seen a lot first home buyer demand pulled forward due to the incentives on offer. Once those incentives are removed, and with more first home buyers having entered the market by this time, demand from that segment should naturally ease.

Further, as more vendors seek to capitalise on the high prices, as we are seeing now, then additional stock on the market will in theory help settle price growth down.

Nevertheless, while interest rates remain low and finance is available, buyers should still be active. Demand, despite all the recent activity, still outstrips supply. By some margin, too.

So, short term frenzy aside, long term sustainable growth appears the most likely outcome for real estate.

 

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