Auction action and prestige market to pick up

In his recent column in Switzer, John McGrath discusses what’s behind the lift in the auction and prestige property numbers.

Here’s what he said:

Sydney recorded its highest clearance rate ever at 87.5% on March 28, despite a significant spike in stock due to it being the pre-Easter weekend.

John Mcgrath

A record 1,128 homes were scheduled to go under the hammer – just above the previous record of 1,111 recorded on the same weekend last year.

Typically, a surge in supply will bring a clearance rate down unless demand is so high that the market can sustain the extra stock. And that’s what happened in Sydney. And it was on an election day.

While it was a record high auction day, generally speaking stock across Sydney is pretty low. New listings are down almost 21% compared to the same time last year, according to CoreLogic RP Data.

While this isn’t great news for buyers, as it increases competition on the stock that is available, it is a fantastic situation for sellers for exactly the same reason.

Problem is, when stock is low in a hot market, we end up in a Catch-22 that is hard to break:

  • Some home owners delay selling because they’re fearful of not being able to find a new home quickly enough – or having to overpay to secure one in a hot market; and this results in a continuation of low stock.
  • Others decide to bide their time and wait til the last possible moment in the growth phase to sell, so they can take full advantage of every percentage point of capital growth that has occurred (it’s a nice theory on paper, but doesn’t always work in practise because it requires precise market timing!)

In terms of the most active buyers in today’s market, upgrading couples/families and investors continue to dominate.

The level of investor activity in some states is very high. AFG – Australia’s largest mortgage broker, says investors represent more than one in every two new home loans issued in NSW (52.9%) compared to 37% in SA; 36% in VIC; 33% in QLD; and 33% in WA.

While activity in the low to middle range of Sydney’s market has been very strong during this boom period, the prestige end has been drifting along for a while.

I still believe we’ll see some positive change this year, with more sales transactions now occurring but no real price growth as yet.

Two things are going to help the prestige market along.

Firstly, the lower Australian dollar has made real estate significantly cheaper and that is continuing to attract both Chinese buyers and ex-pats.

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Many of the ex-pats we’re dealing with have no intention of returning to Australia right now, but they see an opportunity to take advantage of the currency and buy now before the next upswing in the prestige market.

Secondly, the Australian share market is sitting around seven-year highs and getting closer and closer to the 6,000-point mark.

A strong share market – especially coupled with a strong financial services sector in general with good bonuses being received – has always had a positive and direct effect on prestige property demand and prices.

In terms of interest rates, there’s no doubt that February’s cut has sparked further momentum. And no wonder.

How many times in your life do you think you’ll be able to lock in a five year fixed loan below 4.5%? Now that’s an incredible opportunity.

Sydney is definitely still in a boom but it’s going to taper and that will most likely happen later in the year.

Growth won’t stop, it will just slow down. Now is the time to really assess your own situation and how you can leverage today’s market for your future benefit.

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