While we head to the ballot box on July 2 to cast our votes, the property market is undergoing another transition – in a word it is moderating.
Sydney has had spectacular growth in the past three years and it is now rapidly cooling in some parts while in other parts is holding its ground very well. The Melbourne market has reached its zenith and growth looks to be cooling also. Brisbane has been subdued despite much heralded optimism but still looks set for an upswing. Hobart is in catch up mode while Perth and Darwin are still in decline.
Capital City Median House Prices
Sydney’s median house price has dipped back below $1m to $995,804 according the latest figures from Domain. Sydney’s typical growth pattern shows periods of stagnation followed by rapid growth then consolidation. In the chart below we can see that over the last twenty three years there was only 6 years of slightly negative growth and 17 years of very positive growth. This proves the old adage of “time in the market is more important than timing the market” when it comes to property.
Sydney Annual House Price Growth
Despite the rapid increase in building approvals, Sydney will still struggle to provide affordable housing in high demand areas due to housing shortages. Planning rules, high immigration, Chinese capital flows, a strong local economy and a massive transport infrastructure investment will all underpin prices in the local market.
At the present moment there is a severe shortage of listings in the Sydney market. Agents are saying there is a “drought” of listings and a few recent auctions have gone over reserve as a result. Auction clearance rates were 74% last weekend and have hovered around 70% since the start of the selling season.
The message for astute home buyers and investors is to not try and pick the exact timing of the cycle, but instead buy quality homes or investment properties in suburbs where there is consistently strong demand and rental income. Home owners and investors would have seen a significant uplift in their equity position as a result of the last boom which can put you in a strong position to refinance and invest again.
Election campaigns often have a negative impact on the property market as people are fearful of change and therefore impacts consumer confidence.
We have seen that the Coalition policy is to leave negative gearing alone which provides greater certainty for current investors. The Labor policy is to limit negative gearing to only new properties – which would skew investment toward new construction in the hope of increasing supply and jobs. However, this policy is likely to drive up rents as there is less demand for established investment and would also result in property spruikers having a field day promoting off plan developments (which are often over-priced or not in the ideal location).
Official interest rates were lowered another 0.25% on May 3 to 1.75% to help keep the economy on track and toward 3% GDP growth. Financial markets are anticipating another rate cut before the years end. These rate cuts are great for borrowers, and smart home buyers and investors should look to refinance where possible. However, lower rates mean the economy is struggling to grow. Inflation is at a record low of 1.3% (annualised) and well below the RBA target band of 2%-3%.
The opportunities for home buyers and investors during an election campaign and budget announcements is that it can scare some potential buyers away – thereby lowering the competition for available properties. Remember budget measures still have to be passed through parliament.
The herd mentality is to sit back and wait and see what happens, while the savvy buyer continues to monitor market conditions and buy prudently when the right property comes up.
Don’t expect to see boom conditions for a long time – this is a more positive thing for stability and predictability. To make money from property, it is more important than ever to select the right strategy that will create equity and select properties that are well positioned, have good bones and in constant demand. You have to research the market at a very specific level to understand local market dynamics.
If you would like more information about the strategies we deploy or help searching for the right property please call my friendly team of buyers agents on 1300 655 615 today or email us your requirements.
This article was written by Rich Harvey, founder and Managing Director of Propertybuyer, Sydney & Australia’s most awarded Buyers Agents. Propertybuyer helps property investors and home buyers search and negotiate the right property at the right price, every time. Propertybuyer’s agents work exclusively for the buyer and don’t receive any commission or kickbacks, thereby giving their clients unbiased information and the inside running on properties coming up for sale – often before they hit the market. For further details please visit www.propertybuyer.com.au or call +61 2 9975 3311 or 1300 655 615.
Disclaimer: This article contains general information; before you make any financial or investment decision you should seek professional advice to take into account your individual objectives, financial situation and individual needs. Click for more detail regarding this disclaimer.