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Property market mood changing

John McGrath
Friday, February 22, 2019

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We’re seeing early signs that the market mood in Sydney and Melbourne might be changing, with agents reporting more buyers attending opens, including some investors who have been prompted back into action by the impending election, as well as better auction clearance rates compared to late 2018. 

In the first week of February, Sydney recorded a 49.5% clearance rate from 130 auctions, according to CoreLogic. In week two, this rose to 54% from 322 auctions. The preliminary result for last week indicated further strengthening, with 61% clearance from 521 auctions.

In Melbourne, we saw a clearance rate of 44.3% from 162 auctions in week one, rising to 52.4% from 350 auctions in week two. The preliminary result for last week was 54.2% from 657 auctions.

This is encouraging when compared to November and December, when both cities were consistently recording clearances in the 40% range. 

Agents say buyers are feeling refreshed following the Christmas holiday period and are renewing their efforts to buy, with prices down 10-15%. We always see renewed interest early in a new year but this year it seems to be higher than usual.

Among them are investors, who have been largely absent for a while now following APRA’s decision to limit the banks’ investment loan growth and new interest-only loans (traditionally favoured by investors).

APRA has lifted both caps now, so it’s a little easier for investors to borrow, however they face the same challenges as owner occupiers in terms of a more difficult and lengthy loan approval process.

Latest statistics show lending to both investors and owner occupiers is significantly down.

Australian Bureau of Statistics figures released earlier this month show the value of new loans for owner occupiers fell -6.1% in NSW and -6.6% in Victoria in December in seasonally adjusted terms. In fact, the value of new loans for owner occupiers was down everywhere except Tasmania for the month.

The fall in owner occupier lending was concentrated in the second half of 2018 (down a total of -14.5% in NSW between July and December and -18.4% in Victoria), whereas property investment finance nationwide has been steadily declining for two years. It’s now down -40% from the peak at the start of 2017.

Some buyers have been biding their time, not wanting to buy too early before the Sydney and Melbourne markets hit their floor. Others have unfortunately started to doubt the safety of property, given prices have fallen faster than historically (mainly due to lending constraints).

It's the negative sentiment that is stopping them. If you're a buyer, you can buy something knowing you're getting it for 10-15% less than a year ago but with the same interest rates. Some lenders have just dropped their fixed rates into the mid-late 3% range, which is excellent value.

Now is the time for buyers to be brave and look long term. While I’m expecting cooling market conditions to continue in Sydney and Melbourne, I think we’re through the worst part of the correction and we’re getting close to the bottom now.

Investors, in particular, need to consider their position. If we have a change in federal government in May, negative gearing on newly purchased established properties will be abolished after a certain start date; and there will be a 50% hike in capital gains tax for properties purchased after that date, if Labor proceeds with their plans

I do not advocate rushing into property investment to beat a potential change in property tax rules. But if you’ve been thinking about investment for a while and you’re financially ready, you might as well get into the market now when prices are down and there’s time before the election.

If you’re selling this Autumn, I think auction is still the most effective process, even in today's market.

For a vendor that is aligned on price with buyers, they can still get very good results and sell their home much quicker than private treaty.

Published: Friday, February 22, 2019


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