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As we head into the winter months, the property market is set to do anything but cool down. Auction clearance rates for the first weekend of May showed that 61% of properties across the Sydney Metro area sold under the hammer. Now 61% isn’t necessarily anything to get excited about but we must remember that auction clearance rates have been on an upward trend since mid-2011 where they hovered around the 50% mark.
Looking more broadly, the Sydney property market has remained remarkably resilient. Australian Property Monitors recently reported that the Sydney median house price rose strongly by 1.4% in the March quarter. Whilst most of the strength in the market has been present in the lower price bands and also in the apartment market, the good news for buyers in the premium sectors, especially in the above $1.5 Million category, is that there is still some “low hanging fruit” for astute purchasers to take advantage of.
A word of caution on property indices. They are notoriously poor at picking the turn of the market. This is because as confidence returns, it is the discounted properties that sell fastest, dragging on the numbers that might otherwise be reflective of a market regaining its strength. History also tell us, that significant falls to borrowing rates – irrespective of the economic cycle – ultimately improves confidence in the housing sector which drives capital growth. This is bound to show up in industry numbers sooner or later.
In the last week of April, economists were modelling-up what the RBA might do in response to CPI scenarios of between 0.3% and 0.7% rise for the quarter. The results came in at the much lower than expected 0.1% and the rest is history. Setting aside the cheaper imports and grocery prices given a strong Aussie Dollar and a wet summer in agriculture, a CPI reading this low tells the Bank that the economy is in danger of stalling. To the delight of borrowers, commercial pragmatism was shown by the RBA board, no doubt led strongly by the 6 dovish private sector board members.
We would also like to remind that winter in Sydney is an often under-estimated time to sell property. After all, the active buyers in the market find that they are competing for fewer properties than they would, say, in November or March. The colder weather and Saturday sport means that buyers stay local and activate the market. Read More
There is certainly plenty of activity bubbling away within this autumn property market. In fact, the last Saturday in March was reported as "Super Saturday" with over 730 auctions scheduled across the Sydney metropolitan area. According to Australian Property Monitors, the lower north shore experienced 39 sales from 62 of those auctions resulting in a clearance rate of 63% compared to 58% for the rest of the city. We should note that this is the highest clearance rate this year. In a sign that the market is picking up, recent auction clearance rates are much stronger than the average recorded at the end of 2011 which struggled to reach 50%.
Despite the odd 8 figure sale in the stratospheric category, it can be said that Lower North Shore buyers generally continue to be very obviously price conscious. Not surprisingly, the properties that continue to be in demand and therefore sell most rapidly are middle-of-the-market, beautifully presented and well located homes.
The buyers who continue to be the most active, of course, are existing home owners and investors. To back this up, recent ABS data shows that home loans to owner-occupiers rose by 23% and loans to investors rose by 8%, compared to the same time last year. The growing presence of investors in the market is hardly surprising. Given the volatility in other sectors, a continuing gross undersupply of new housing stock and very restrictive rental markets, well-located property tends to shine through as the asset of choice. Dwelling approvals have declined for the 5th month in a row in New South Wales highlighting that supply side issues are far from abating.
Of course, a crucial ingredient for the ongoing momentum of a recovering housing sector is interest rates. Interestingly, a Bloomberg survey of economists shows that two thirds of respondents expect a rate cut by June. The accepted rationale being that, firstly, lenders unwantedly lifted rates out of sync with the RBA in recent months, secondly, that domestic and global growth continues to be sluggish and finally that inflation is well under control. Throw into the mix that almost every major firm in corporate Australia are rationalising costs right now resulting in job cuts and the retail sector is flat-footed, it stands to reason that the RBA Board, sooner or later, will further cut the official cash rate to 4 per cent. We contend that this will provide the stimulus that a healthy housing market requires at this stage. Read More
Stability and opportunity are the two words we often hear used to describe the prevailing conditions affecting the property market. Buoyed by rate cuts late last year, the property market has experienced small but notable rises in price for the year to date. Across the broader Sydney Metropolitan area, houses and units are selling at median prices of $676K and $496k respectively, according to RP Data, which represents a 1-2% uplift for the year so far. The Sydney market has experienced less than half a percentage point variance from its peak whereas other capital cities have experienced seasonally adjusted changes of between 7% and 9%. This shows clearly that Sydney is the most stable and therefore safest property market in Australia. For the same reasons, Sydney property compares highly favourably amongst its global peers also.
Locally, there is no hiding from the fact that 2011 was a very challenging year especially for top end properties. According to RP Data, premium properties experienced around 5-7% declines in Sydney compared to the broader market which held steady. RP Data Research Director Tim Lawless says “the prestige market will not be boosted until there is a return of business confidence and an improvement in share portfolios.” Fair enough. Happily, we have seen steady incremental increases in the stock market recently without so much of the volatility experienced in 2011. The ASX 200 has been trading in a consistently narrow band (4000-4400) since August. A stable but improving equities market is likely to be the cornerstone in giving high-end buyers the confidence to trade.
In February, despite economists widely tipping a rate cut, the RBA held official interest rates steady at 4.25%. Given that the economy is growing at trend, inflation is travelling in the middle of the RBA’s target band, the unemployment rate has fallen to 5.1 per cent and stock markets have stabilised.
Given the market’s new found stability, buyers are undoubtedly looking for homes with significant residual value which had fallen out from the soft 2011 market. Accordingly, well priced homes in favourable locations are starting to attract considerable interest from canny would-be purchasers.
Importantly, whilst Sydney clearance rates remain relatively steady (56%) when comparing the same weekends year on year, it is notable that the number of listings has fallen significantly. For the first weekend in March, last year there were 497 auctions compared to 391 this year. The weathervane points to upside so long as choice for buyers is limited and confidence seems to be returning. Read More
March 2012
The Reserve Bank left the official cash rate unchanged at 4.25% for the second consecutive month. This decision was largely expected, with most economists now expecting rates to stay on hold until mid-year.
Australia's banks could lift their rates independently of RBA for the second consecutive month. ANZ was the first lender to move out of cycle last month, lifting their variable rate by 0.06%. ANZ monthly rate meeting is set to take place again this Friday, with many industry watchers now predicting the lender will look to lift rates for the second consecutive month. If this comes to pass, it will be interesting to see whether or not the other lenders follow suit given they lifted their rates by more than ANZ last month.
Last month, lenders increased their rates as follows:-
ANZ increased their variable rates by 0.06% taking it to 7.36%pa
CBA increased their variable rates by 0.10% taking it to 7.41%pa
NAB increased their variable rates by 0.10% taking it to 7.31%pa
Westpac increased their variable rates by 0.10% taking it to 7.46%pa
St George increased their variable rates by 0.12% taking it to 7.42%pa
Bendigo Bank increased their variable rates by 0.15% taking it to 7.45%pa
Lenders kicked off 2012 with a slew of discounts in a bid to compete for business in a subdued housing finance market. A number of these discounts were scaled back in February as lenders responded to shaky global economics and rising funding costs. They are now offering competitive fixed rates such as 2 year fixed rates starting from 5.89% to 6.19% or 3 year fixed rates starting from 5.99%pa to 6.19%pa depending on the lender.
Denise Sisavanh-Chan, Mortage Broker l m: 0410 606 033 l denise.sisavanh@loanmarket.com.au
