The Impact of Lockdowns on Property Supply & Demand - August Market Update
Written by: Rich Harvey, CEO & Founder
Despite the negative economic impact of the current lockdowns around the country, the property market in most areas is showing considerable resilience and growth.
The primary take home message from this update is that there is a small window of opportunity to buy now, while the market is in a lockdown phase, and there is a temporary dampening of both supply and demand due to negative economic impacts.
What we have learned from previous lockdowns is that the property market rebounds very strongly when the restrictions are lifted. Pent up demand and frustrated buyers quickly appear to snap up the limited property listings that are available.
We are open for business and still actively buying for our clients during the lockdowns and finding and securing a greater proportion of off-market opportunities than ever before.
The latest figures from CoreLogic show that all capital cities saw significant house price rises over the past month:
We’re seeing some buyers slightly hesitant to pull the trigger and buy in a hot market. However, capital growth is lost to those that hesitate! As shown by the figures above, property prices are rising rapidly. In some suburbs prices have been rising at between $10,000 to $20,000 per week!! There are now weekly examples of properties that were only purchased a year ago and vendors taking advantage of a hot market to make a tidy profit. A property at 39 Maxwell Street, South Turramurra sold for $2.45m last weekend which was $620,000 more than they paid just under a year ago.
Median price levels are being “reset” on a weekly basis in most capital city suburbs, as vendors are also watching the market and are unlikely to accept less for their home than what their neighbour just obtained.
While we joke about our birthday age and say that 50 is the new 40 (and try to feel younger) the same cannot be said about the property market. In fact, the opposite is true. While last year the house for $1.9m looked ok, today it is massive challenge to buy it for under $2.4m! The apartment that you were hesitating about buying at $900k, now has 4 other buyers all willing to offer $1.2m plus.
The opportunity cost of waiting and hesitating is quite dramatic when you breakdown the numbers. Let's say you were looking at a property purchase price around $1.5m – but thinking that by waiting during the lockdown, that you'll be able to get it at a cheaper price once the lockdown finishes. In the meantime, property prices have been rising between 2% to 3% per month.
Let's assume that prices will only conservatively rise say 1.5% per month from this point forward (non-compounding) and you wait a total of six months before you actually pull the trigger on this property purchase.
Then you may end up paying:
After one month: $1,522,500
After two months: $1,545,000
After three months: $1,567,500
After four months: $1,590,000
After five months: $1,612,500
After six months: $1,635,000
So, the EXTRA you could pay is costing you $135,000 (or $22,500 per month). Try saving that amount of money from your day job! It’s virtually impossible for most people.
The Impact of Lockdowns
Melbourne suffered a disproportionate number of lockdowns compared to the rest of the country (devastating many small businesses). Real estate agents were also not allowed to conduct private inspections even during lockdown. This severely impacted the Melbourne property market and transactions volumes were very low.
In Sydney and Brisbane, the real estate industry has been allowed to continue – with auctions going online and open inspections restricted to one person at a time by private appointment. This scenario of individual appointments is a nightmare for most agents as it takes 2 to 3 hours to do a standard open house - and standing outside in the cold letting through one person at a time is enough to drive anyone crazy!
During the lockdown period, we’ve only seen a slight dip in auction clearance rates and the overall volume of auctions has also reduced.
Vendors tend to hold off listing their property for sale, worried they won’t get the same volume of potential buyers through the door.
For buyers, the majority are still keen to look, while others are fearful of catching covid and prefer to stay indoors and shy away from opens.
But with listing volumes down 25% from the long-term average, prices are holding up extremely well.
Property is selling faster than ever before - the time it takes to sell a home has fallen dramatically since last year. Across all combined capital cities, it takes an average of just 27 days to sell a home.
The Way Forward
There’s no doubt that buying during a lockdown brings extra challenges. But underlying demand is still simmering away. With everyone spending far more time at home than ever before, we are seeing home owners redefining their expectations and life goals and demanding better, bigger, fancier and lifestyle appointed properties.
If you are serious about buying a home or investment property in the next six months you must have a sense of urgency. This is not to say you will miss the boat, but if you genuinely want to take advantage of a rising market, you must act with speed in getting your finance approval in place, doing sufficient research to understand the local market, comparing different options, finding off market deals and negotiating well.
If all this sounds too daunting or you just don’t have the time, we’d love to help you. Please reach out for an initial discussion about your requirements.
Please call us on 1300 655 615 or email us your Buyers Wishlist today.
My team and I personally transact around 5 to 10 off-market opportunities a month. Using a range of strategies through social media, our extensive agent database built up over 20 years, our “properties wanted” page on our website and many personal connections we leave no stone unturned in the property search. It’s by having the right connections, qualified buyers and intuitive dialogue around these off-market opportunities that we can provide a significant advantage for our clients.
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