First quarter was exceptionally strong
Anyone hoping for or expecting a correction in the Sydney property market was left gob smacked after the first quarter of 2015. Respected analysts have rushed to increase their forecast for the year with price growth set to continue. It would be fair to say the Inner West market experienced growth of over 5% in the quarter alone. Annualised, this is suggesting 20% for the year, which seems hard to fathom.
With interest rates set to be low all year and the NSW economy performing well, it does not seem as though there is a trigger to stop this boom market anytime soon. The sheer strength of the housing market has seen the RBA issue warnings about an overheated market. In times like this, its important to remember that the bigger the party, the bigger the hangover.
The real winners from this market has been the banks, investors who were in the market before the boom begun and baby boomers downgrading. The losers, and there are losers in a boom, are clearly first home buyers. To a lesser degree, young families looking to upgrade also find transaction expenses have risen exponentially with the market. Unlike first home buyers, upgraders own an existing dwelling which acts as a hedge against the higher prices they will need to pay on their purchase.
We saw some standout results during the quarter that really demonstrated the market’s strength. 24 Coleridge St Leichhardt is a 2 bedroom semi on 150sqm that sold for $980,000. What made this result such a standout is the fact a superior semi just next door sold for $926,000 in December 2014. A historic shop front residence in Palmer St Balmain sold $1.4 million after 80 inspections and 6 offers were made in just 14 days of marketing. Offering 2 bedrooms and abundant potential, the huge buyer interest saw the final result exceed expectations.
The question many are asking now is when will the boom stop? There is little need to question the current market conditions given the strength is so obvious.
Buyers are well advised to note that the boom finishes when it finishes. It won’t stop because one thinks it should or wants it too. Conversely, sellers will be tempted to overplay their hand in this environment, and many are likely to get away with doing so. It’s important to carefully track events and to look for any change in conditions when you are thinking of buying or selling. No one is expecting the market sentiment to change in the next quarter, but that does not mean that it won’t.
In 2014, the Federal Budget and the uproar that followed spooked the market. It’s good to note that the 2015 Budget will be delivered in May. Already the public have been softened up with messages in relation to possible tax changes on negative gearing, superannuation and GST. It would take a significant policy to change buyer confidence, but an alteration in any of these areas could do so.
The despicable practice of deliberate under quoting has been in the news throughout the first quarter also. The recently reelected Baird Government has promised a crack down on the tactic designed to bait buyers into bidding at auction with the suggestion of a below market price. The Department of Fair Trade has already prosecuted a couple of agents as part of the crackdown.
Given under quoting has been such a widely used sales tactic across the industry, it could be said that it’s harsh to have publicly singled out just one firm for adopting the practice. Understandably, many buyers that have been burnt by the tactic will have little sympathy for any agents caught under quoting.
It was interesting to note that agent’s price guides across Sydney suddenly became more realistic once the first prosecution for under quoting took place. The auction system relies on multiple bidders. Now that agents have to quote buyers the same price that they told the sellers, less buyers will be sucked into bidding at unwinnable auctions. The illusion of dozens of buyers at the auction will be removed. Only buyers prepared to pay a fair market price or better will be inclined to bid at the auction.