Recently, we have noticed that conflicting and confusing media reports have left both buyers and sellers feeling unsure about the current state of the property market. We thought it may be useful for our clients to share some of our observations about the current Lower North Shore market, as well as giving our predictions about what is going to happen in both the short- and longer-term.
What’s happening now:
From late last year to early this year we experienced what seemed to be the beginning of a market recovery after a slow start to 2010, but growth in our area seems to be on pause for the moment. Our best guess is that this is due to global economic uncertainly, fear of interest rate rises and a number of natural disasters both abroad and closer to home.
The market generally is slightly softer than it was 6 months ago. Auction clearance rates are hovering around 50% to 60% and according to RPData there is approximately 30% more property on the market compared with the same time last year. However, the stock levels are not expected to remain so high, as traditionally there is a drop in winter and this year seems to be no different.
The luxury segment of the market seems to be most impacted market segment at present. This is certainly true in the Lower North Shore and according to our Century 21 colleagues, every capital city appears to experiencing the same conditions. Past precedent suggests that the top-end is the segment of the market that will most dramatically rise once economic confidence returns.
Buyers are also acting with a great deal of caution. From our property enquiry we can tell there are lots of people wanting to buy property, but it seems that there are plenty who are waiting to see what the market does. There seems to be greater hesitation in some segments of the market, whereas in others buyer activity is still quite strong. We are still experiencing strong demand under $2million, whilst much less demand for properties over $2million.
We constantly hear from buyers that they are waiting for prices to hit the “bottom” before buying. The problem with this methodology is that the only way you can determine the bottom of the market is once prices have already begun to rise. Over the last 20 years, each time the market has risen after a correction, buyers always lament “missing the bottom” and wish they had bought 3 months previously.
Given that rents are on the rise and prices are slightly softer at present, it is an excellent environment for investors. One and two bedroom apartments are extremely popular at the moment and there is increasing demand from Self-Managed Super Funds investing in residential property.
Our best recommendation to buyers is to make property decisions based on what best suits your lifestyle, versus gambling on what may or may not happen with the “market.” It is so critical to keep in mind that for most of us, purchasing a property is a long term proposition!
Predictions for the short-term:
Interest rate uncertainty for the months to come is causing concern for some buyers; however, we interpret the major banks’ actions to mean that rate rise woes may be limited. Banks are offering reasonably low 3-year fixed term rates at present, which indicates the banks are fairly confident that we won't see too much upward movement in rates in the coming months.
Banks are also starting to lend again: it’s been awhile since we have seen a bank lend 95%, but we have just sold a handful of properties where the purchasers have in fact borrowed 95% without any difficulty. This suggests that the banking sector has confidence in the property market and anticipates longer-term capital growth.
In regards to recent headlines claiming that Sydney property prices are 40% overvalued, we would not recommend putting too much credence in these “experts”. These headlines appear in the media every couple of years. Over the last 20 years, we have not had a market drop by anywhere near this figure. If memory serves, the biggest drop was about 20% and within about 9 months these losses had been made up.
Our house prices are underpinned by a strong demand at the entry level of the market, which trickles up to the higher end through a knock-on effect. First home buyers continue to represent a large segment of the market, reportedly as high as 17% of the market in Sydney. As rents in Sydney continue to escalate and the government continues to incentivise buyers, tenants are more than ever trying to break the renting cycle in favour of purchasing a place to live.
Predictions for the medium- to long-term:
Sydney’s housing shortage and record low building approvals remain unresolved, which means the property supply will not be able to keep up with immigration and population growth in the years to come. This will continue to drive the market in the medium to longer term.
We are predicting an adjustment somewhere between 5 and 10% over the next 12 months, followed by a period of relative stability over the next 3 to 5 years with nominal growth. Before there is any real upward pressure on house prices, there needs to be some absorption of the extra stock on the market, as well as a return to sustained buyer confidence.
Unfortunately no one can know for sure what the next 12 years or even the next 12 months will bring, but we are certainly committed to keeping you up –to-date with the latest developments in the market as we see change. We are committed to assisting our clients to make the most of any market, and would be happy to discuss your buying or selling plans further, please contact us anytime.
Best regards,
Joshua Wygoda
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