We’re ending the 2019 financial year on a positive note, with the first month of price growth in both Sydney and Melbourne since their respective peaks in July and November 2017.
CoreLogic’s June report indicates a turnaround in Sydney and Melbourne, with home values up +0.1% in Sydney and +0.2% in Melbourne for the month of June.
Although these movements are very small, they indicate a real change in sentiment following the federal election and the first interest rate cut in 30 months in June.
Recently, auction clearances have bounced above 60%, which is the benchmark for normal market conditions. Extra reductions in fixed home loan rates by the banks, coupled with APRA’s decision to ease credit criteria, are also factors waking buyers up to the opportunities of FY2020.
For the financial year 2019, the CoreLogic report shows Sydney home values fell a total of -9.9% and Melbourne dipped -9.2% over the 12 months to June 30. This is more reflective of losses in 2018, with the pace of price declines slowing every month in 2019, as the market began to regain strength.
Now we’ve got the first positive numbers, which indicates to me that we are through the worst of this downturn, at lease in these two cities. We might get some fluctuations in monthly figures from here, as markets rarely recover in a straight line, but I think the bottom is either here or might have even already passed.
The results for FY2019 broken down between houses and apartments are as follows:
Median house price: $866,524
House price change: -10.8%
Median apartment price: $682,374
Apartment price change: -8.0%
Median house price: $709,092
House price change: -11.8%
Median apartment price: $527,748
Apartment price change: -3.3%
Source: CoreLogic Hedonic Home Value Index, June 30, 2019 results
With change in the air, what opportunities does the market floor present for you?
Opportunities in Sydney and Melbourne in FY2020
· Should you upgrade? You might sell for less while prices are soft but you’ll also be buying up the ladder for less, too
· Should you buy an investment? Prices have fallen significantly and rental yields are stabilising or growing
· Should you buy your first home? From January 1, you can access the First Home Loan Deposit Scheme and buy with just a 5% deposit; you also have the Super Saver Scheme where you can make deposits into super and use the tax benefit and investment yields to fast track your savings; plus there are various stamp duty concessions and first home buyer grants available in many states. All of this on top of fallen property values…
People often say to me, “John, when is the best time to buy?” The common response to this question amongst agents is “20 years ago” but today I’ll give you a different one – I believe it is NOW.
I’ve been in real estate for 35 years and if there’s one thing that concerns me and that is people missing obvious opportunities. Property is an incredible effective wealth creation vehicle and even more so if you can buy at the bottom and sell at the top!
Buying a property is a big financial decision and that’s why most people wait for the comfort of the herd to move first, at which point prices will already be on the rise.
You should always buy with a level head when your financial position is nice and secure. Trying to time the market is usually a bit of a fool’s game but if you’re ready to buy now, then I’d encourage it!
Barring some major international economic event, if you buy now you’ll be purchasing at or very close to the market floor.
It’s worth remembering that in high value markets like Sydney, even a 1% price rise means you’ll be paying $8,700 more for a house and $6,800 more for an apartment based on today’s median prices. So, if you’re ready, why wait?
Let’s take a look at price changes over FY2019 in other capital cities. Only two cities had positive (but small) gains in home values and this is due to credit curbs affecting buyers in every market.
FY2019 change in home values
Source: CoreLogic Hedonic Home Value Index, June 30, 2019 results, house/apartment prices combined
Credit has remained the No 1 challenge in property in FY2019. Even though APRA is now easing serviceability criteria, tougher lending conditions are the new norm and we have to get used to it.
Buyers need to do more preparation than ever before, including cleaning up their bank statements and reducing discretionary spending, ideally many months before applying for a loan, to get past the high scrutiny of living expenses we’re seeing today.
The No 2 challenge in FY2019 was the possibility of a change in federal government. That created uncertainty in the marketplace and there was concern around Labor’s proposed changes to CGT and negative gearing and how that would impact property prices and future investment activity.
The Coalition win was a big surprise and the market breathed a sigh of relief. Agents and developers noticed an immediate lift in buyer enquiry and engagement in the week after the election.
Continuity of government and confidence in the Liberals’ economic management will play an ongoing role in property next year. Political certainty and stability will support market momentum.
In terms of predictions for FY2020, I think we’ll see both Sydney and Melbourne continue to turn. There should be a lift in first home buying given so much assistance is now available; and we might see some investors venturing back into property now that tax concessions will remain.
Record low interest rates will help many people make their next move, while also enabling owners to pay down debt. Making extra repayments while you can afford them can reap amazing benefits in terms of years and interest saved later. This is a worthy goal for FY2020.
I’m looking forward to an exciting new financial year in property.