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Late spring rush of new homes for sale

John McGrath
Tuesday, October 26, 2010

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We’re seeing a significant increase in the number of new listings coming onto the market for sale this spring in our biggest capital cities.

Following strong results in September, temporarily stable interest rates and steady clearance rates in Sydney and Melbourne, the two biggest auction markets in the country, homeowners have got the extra shot of confidence they needed to pursue a pre-Christmas sale before the possible rate rises of 2011.

In Sydney, independent data house SQM Research predicts 30 per cent more stock will be available for sale this November compared to last year. RP Data figures show the number of properties auctioned in our three biggest markets either increased markedly or held steady in October compared to September. Sydney and Brisbane increased substantially while Melbourne volumes remained steady at already high numbers.

If you’re a seller, don’t be concerned about the additional supply – demand is strong enough right now that it would take a massive wave of new property listings to tilt the supply-and-demand benefit towards buyers.

Here’s why buyer demand is strong.  Firstly, interest rates have been steady for a few months so purchasers’ buying power has stabilised and this has fuelled their motivation.  Some of the banks have also loosened their purse strings and agreed to lend money to more property buyers. While I am concerned about the potential impact on the market if interest rates were to rise by more than 50 basis points, the most active buyers in our market, upgraders, have already factored this into their budgets for 2010.

Secondly, supply and demand has been in the sellers’ favour for a long period of time.  When supply is low, it can take buyers many months to find their new home and this keeps demand high for long sustained periods. Thirdly, there is the seasonal influence with November always a high volume month as people start appreciating the Christmas deadline and the convenience of moving house during the holidays before their kids start a new school year.

Demand is strongest for family homes under $2 million in the inner and middle rings of major capital cities like Sydney and Melbourne. These buyers are upgrading from smaller homes to accommodate their growing families.  Activity in the $2 million to $4 million range is fairly subdued but this will change as the share market strengthens.

Many of the sellers in the $2 million- to $4 million-price bracket are empty-nesters who are keen to buy large lifestyle apartments close to the city in the $1 million to $3 million range. Demand for these apartments has strengthened over the past 12 months and will strengthen even further once there is more demand for the larger family homes in the $2 million to $4 million bracket. Most vendors prefer to sell first, so the empty-nesters are biding their time a little while this sector strengthens in line with equities.

With fewer first homebuyers around and rents on the rise, investors are still active, particularly at the more affordable end of both the house and apartment markets. In Sydney, my company is selling 35 per cent of all our property listings under $1 million to investors.

I firmly believe that property will reap substantial rewards for investors who purchase in 2010 and 2011. This is particularly true in markets such as the Gold Coast where some suburbs are down 30 to 40 per cent on 2007 values. When confidence returns in these areas, values will rebound and there will be the potential to see 10 to 20 per cent capital gains in the first year. I think most buyers will look back in 2015 and thank their lucky stars they bought good real estate in 2010.

Important information:This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

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Published: Tuesday, October 26, 2010

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