With falling markets in Sydney and Melbourne and analysts such as Louis Christopher from SQM Research expecting further declines, do these property cycles now point in a direction favourable to buyers – making it a good time for investors and first-home buyers (FHBs) in Victoria and NSW?
According to latest Core Logic data, October’s auction clearance rates hover at around 50 per cent for Melbourne and Sydney. QBE’s Australian Housing Outlook for 2019 also predicts further respective falls of 4.2 per cent and 3.5 per cent.
Many commentators seem to agree there’s no rush right now for investors, while the FHB contingent does more heavy lifting and becomes active in the north-west fringe of Melbourne and mortgage lending increases 74 per cent for FHBs in Sydney.
Are we in a Buyer’s Market?
Terms like “buyer’s” and “seller’s markets” are used by property commentators to convey an idea that one party holds negotiating power over the other in the interest of a residential sale property, such as when seller supply overwhelms buyer demand (Buyer’s Market) or vice versa, when supply can’t keep up with demand (Seller’s Market) giving sellers the negotiating edge. The sound of “buyer’s market” becomes loudest as a cycle’s heat ripples from the inner ring towards the outer suburbs – latest data figures suggest only 17 suburbs across metropolitan Sydney and Melbourne are still gaining value, while regional NSW and VIC have 59 and 42 growth suburbs respectively.
Typically, the majority of house purchasers enter during a rising (Seller’s) market, when property prices are nearing their peak and about to flatline. In Melbourne and Sydney, this was between 2015-2017. Buying in today’s falling (Buyer’s) market presents a less experienced buyer with greater uncertainty and possible negative equity until 2020 (as AMP’s Shane Oliver recently predicted) but often more opportunities, depending on how advanced they are in their financial preparation and knowledge of the property and its suburb’s historical growth trajectory.
What does this mean for investors and first home buyers?
When making rational buying decisions, it can be beneficial to momentarily tune out the commentary and ask, regardless of the market conditions, does a property purchase, be it house and land or investment, align with your specific and longer-term goals?
For instance, professional investors tend to buy properties (and land to develop or subdivide) below their intrinsic, or historical value, with scope to renovate or manufacture value often in a gentrifying precinct – usually, if timing is ideal, just before the peak rush of a buyer’s market as seller sentiment further declines and prices approach cyclical lows. Such investors have a knack for capitalising on a vendor’s desire to sell quick in busy middle-ring areas. First home buyers can stimulate the next phase of the cycle as it’s more generally declared a buyer’s market – low auction clearance rates, higher number of houses passed in, rising interest rates, and tighter lending conditions for investors albeit more government stimulus packages and incentives for FHBs. Even applying a broad term like “property cycle” can be misleading when considering every capital city is at different growth stages and within that, has dozens of suburbs all at different cyclical stages.
What should you consider as a purchaser?
Gradually, confidence pours back into the market as the cycle reboots, and recent Australian property booms have lasted five to seven years followed by falling asset periods of between two to three years. So, knowing when the time’s right to buy can often be less about fixating on where the market is at and more about a focus on personal circumstances to buy at a price you consider fair and in line with your knowledge and expertise. Things to consider would be:
• Stress testing your budget with a mortgage broker and taking into account unforeseen events that may impact your ability to service a loan
• Consulting with preferred builders found on iBuildNew to firmly cement ideas and compare quotes and construction periods and/or discover what new areas have planned gentrification and development activity or oversupply issues
• Thoroughly researching a postcode and street you intend to build or invest in to ascertain it’s lifestyle amenities/facilities, demographics and neighbourhood character
• Investigating whether government or council grants and concessions may help further your investment or FHB goals
• Asking yourself where you see yourself in a decade or more and how the property may fit this vision. Are you buying a house to make your home and wanting to invest in other asset classes during that time as opposed to buying a house that will be someone else’s home?
If you’re thinking of investing in property or taking your first steps towards entering the property market, book a call to find out how iBuildNew can help.