How’s the market? Stock remains tight

It is darkest during the hour before dawn and housing stock is usually at its lowest level the month before Spring. Given that the Federal Election has now been set for September 7, it is a fair call to say that the traditional Spring selling season will hold off until mid September. In turn, buyers already facing a lack of inventory will see the situation tighten even more in August.

Another interest rate cut combined with an election campaign announcement and a low level of listings, will keep the advantage with sellers, particularly in the Sydney and Melbourne market. In comparison with the Winter of 2012, the market has essentially gone from a near bust to a near boom. The market for houses below $1 million has increased about 15 percent from its low in the past 12 months.

Other indicators also suggest healthy market conditions. Time on market is now under 40 days, auction clearance rates are hovering at 80 percent, there are multiple buyers and offers per property transaction and sale prices are exceeding sellers’ expectations. The thought that the property market reacts poorly to elections has been destroyed in 2013 as the market continues to rally.

Indeed, it is the post election reality of budget cuts and increasing unemployment, which could be the real danger to the current market rally. Home sellers would be well advised not to take the current good times for granted, given that there are obvious challenges looming on the horizon.

Furthermore, if cheaper money has been the cause of price rises in 2013, by causing excess demand, it stands to reason that demand (and prices) will fall if interest rates were to rise. This in turn, suggests that a price bubble could form if interest rates continue to fall and cause house prices to continue to increase. Indeed, any house price increase is only worthwhile to the degree that it is sustainable. The true house market strength will be tested heading into 2014, but it should remain healthy throughout the next quarter.

While it has been well reported that the average house price in Sydney and Melbourne has increased this year and the property market is extremely strong, it is worth noting that this strength is not universal.

Most of the demand in Sydney’s Inner West has been for apartments in the sub $700,000 range and for houses under $1.1 million. Prices in the $1.1m to $2m range have not seen growth to the same degree, although the small growth which has occurred in that sector has still been welcomed by home owners.

Above $2 million, the market remains relatively flat. Inspections and enquiries are still subdued in the prestige end of the market in comparison to the broader market. However, when compared to last year, there has still been an increase in the number of transactions at the prestige end, even if the prices are slightly below seller expectations.

Home sellers at this end of the market would be well advised to avoid the auction process. If your home is passed in for a low price, you greatly diminish your chances of selling for a higher price after the auction. There have been examples of properties passed in for $400,000 below the reserve price recently. Such a public failing makes it a long and difficult road back to success.

While the rally in house prices dampened investor enthusiasm in mid 2013, in late 2012 and early in 2013, we saw investors taking advantage of soft prices and low interest rates. A lot of investment opportunities have now disappeared because prices have jumped significantly. For investors looking forward, it’s worth noting that a multitude of new developments coming up to completion in the next few years will assist in moderating rents. The past decade of continual growth in rents may begin to ease over the next few years.

Home buyers currently looking to enter the market are encouraged to remain patient. The joy of buying now can quickly turn into real pain if, in a flurry of excitement, you buy the wrong property, or buy a property at the wrong price. Admittedly, it is not easy to remain patient when house prices seem to be on the rise each week. But, on the other hand, if you do happen to find the right home within an affordable price range, you should move on it decisively. The longer a property sits on today’s market, the more likely it is that someone else will buy it.

 

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