This year Australian dwelling prices are forecast to rise at the slowest pace since 2012.
Gone are the days of the double digit capital growth the Sydney property market enjoyed over the last few years.
In fact Melbourne’s property market, with a forecast rise in dwelling prices of only around 6% this year, is likely to overtake Sydney to be the best performing capital city this year .
It’s important to recognise what’s behind this move into the next phase of the property cycle, because a slowing market, especially in Sydney, doesn’t necessarily mean a significant price drop or correction – which is what many potential buyers who missed out over the last few years are secretly hoping.
Sure in some segments of the Sydney real estate market the pendulum has swung too far.
Especially in the outer south western suburbs and in the Canterbury Bankstown regions where we are back into a “buyers’ market.”
But in my opinion, these were never “investment grade” locations anyway.
However, in other loctations, the markets are taking a breather getting ready for the next upturn
Very fragmented markets
With Sydney’s overall property price growth likely to be between 2% and 5% this year, these numbers mask the wide variation among Sydney’s 650 suburbs.
In high-demand inner and middle ring suburbs close to town, capital growth will be considerably stronger, while in outer suburbs where first home buyers abound, prices are likely to fall.
You see…the overall fundamentals for Sydney property are still strong, but our markets are taking a breather brought about by a lack of confidence related to the rise in interest rates late last year and the ongoing conveyor belt of negative media.
This has led to falling auction clearance rates from their heady rates of last year to more normal levels today.
What is happening is that there are fewer interested parties in each property and therefore we’re not seeing that high level of competition, which drove prices up in Sydney and to a lesser degree Melbourne.
The reduced demand also means that sellers need to lower their expectations when it comes to price and be prepared to meet the market if necessary.
This change in behaviour won’t happen overnight as there is often a lag between seller’s and buyer’s expectations in a cooling market.
Unfortunately media commentary on the market doesn’t help with many headlines spooking buyers of an imminent “crash” or “price correction.”
In his recent presentation in front of 700 attendees at our National Property Market & Economic Update in Sydney, Dr. Andrew Wilson, chief economist at Fairfax / Domain gave his views on the economic outlook.
- Currently our markets have been slowed down by falling consumer sentiment. Pessimism outweighs optimism – our future is a little cloudy with chronic low inflation and low economic growth.
- The Reserve Bank is wary on the near-term direction of Australia’s economy meaning an early rate cut is now more likely –they hope to stimulate the economy and job creation is the key.
- Australia’s economy is in long-term transition from the recent resource boom, and while it is picking up slowly it is increasingly being held hostage to global forces.
- Australia’s budget deficit is constraining government spending.
- NSW’s economy is in a solid growth trend – NSW is Australia’s top performing economy and we’re creating more than half the jobs around Australia.
In other words – the long term fundamentals for Sydney, Australia’s largest property market, are sound but the markets are pausing, not because of poor fundamentals, but due to short term lack of consumer confidences, and it’s likely this will turn more positive as the year progresses.
This means there are still many great buys out there if you concentrate on purchasing the right property, an “investment grade” property in a good location.
Don’t wait for the market to turn, instead buy when your finances are ready and when you see an opportunity.
And while some urgency seen last year has disappeared, good properties – what I call “investment grade” properties, are still selling quickly.
So what should you do?
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