The busy start to 2009 has gathered further momentum with our auction clearance rates for most of our offices pushing well above 70 per cent since Easter. Whilst the majority of the strength has centred on the lower end of the market, I’m also seeing sale results more regularly in the $1 million plus range significantly exceeding expectations.
Bottom up residential recovery continues
The Sydney market has currently split itself more by price bands than the traditional geographic segmentation with a bottom up led recovery well underway. The first homebuyer surge is quite unprecedented with a rapid increase in buyer activity below $500,000 in almost every market. There is no doubt that the Boost is having a knock-on effect – directly impacting the second homebuyer market too. This has been driven by several key factors:
Government’s First Home Owner grant
Record low interest rates
Shortage of available listings
Overall housing shortage across NSW
Rapidly rising rents.
With the exception of the First Home Owners Boost, which will reduce from 1 October and cease at the end of the year, the other drivers are likely to continue to be in place for some time yet. I have formed a view that there may be a slight dilution in demand over the next six months but I expect this sector of the market to continue to perform well going forward. Rising unemployment is quite likely to be the other contributing negative factor to this market and if unemployment were to hit 10 per cent, my view on the sustainability of current demand and prices would be revised.
Here are a few other observations that I am seeing in the current market:
The strength in the sub $500,000 market has cascaded up to the $500,000 to $1,500,000 range. Sellers in the lower end have pocketed better than expected results and are reinvesting these funds to upgrade their homes with confidence.
There have been relatively few mortgagee sales conducted in the Inner Ring of Sydney (within 15km radius of CBD and on the coast), however I expect that there will be an increase in the number of these sales as unemployment bites over the next six months.
The luxury market (over $5 million) is harder to gauge, as the volume is limited and with a small sample base there will always be one-off sale anecdotes that dominate conversation and headlines. There remains a distinct shortage of ‘trophy’ properties that will always be highly sought-after. I suspect the top end is about 15 per cent off its highs, although we have found on a number of occasions individual instances of properties selling well above their 2007 sale price. If the market remains tight with no great increase in luxury listings sold, I predict that most of the price falls will be regained in 2010.
The vacancy factor in Sydney rental property has been hovering around 1.3 per cent, which is about half the ideal balance of three per cent (three per cent is generally considered a fair balance of supply and demand of rental property). This shortage will continue for at least a further 12 months due to the long lead-time of new properties being built. I expect rents in most areas will rise between seven to 10 per cent in the 2010 financial year, with greatest demand around the inner city markets.
RP Data has flagged through their internal indicators that there is likely to be an increase in new listings hitting the market between now and Christmas. It’s hard to gauge the quantum of this, however, if this does happen it will take some of the urgency out of the market. I don’t anticipate this will cause price reductions but it would more than likely result in a price plateau whereas if the current shortage of listings remains I could see prices increasing by 2.5 to 5 five per cent in the next six months off the back of a stabilising economy.
There is an increasing number of enquires and purchasers originating from Hong Kong and Mainland China which is the first indication of offshore interest in our market for several years.
Buyers are now starting to wonder whether they should lock in these record low rates. Our mortgage broking company, Oxygen Home Loans, has recently seen a spike in variable rate enquiries due to continued speculation that rates will go even lower in the short term. Currently 90 per cent of our customers are still choosing variable rate mortgages over fixed rate products.
Feedback from my real estate colleagues in the US indicates that they are starting to see the first signs of new buyer activity in over two years. The hardest hit markets of California, Las Vegas and Florida have experienced a slight rise in buyer enquiry and purchase activity, albeit at prices significantly below 2007 values (40 to 60 per cent decline in many markets). I have had similar comments last week from London for the first time also.
Buy in these suburbs and outperform the market
With everyone looking to ‘pick the bottom’ and signs of a stabilising if not improving economy, it appears that the next six months may be the period that many people come off the sidelines and invest in property for personal use or investment. I personally agree with the view that 2010 will be the turnaround year and expect price increases in most areas and price ranges of between five to 10 per cent during the 2010 calendar year.
For investors and first homebuyers looking to buy between now and Christmas, I have 10 suburbs that I highly recommend as areas that provide great lifestyle and will outperform the market:
Brighton Le Sands ($400,500)*
Dulwich Hill ($366,500)
Neutral Bay ($520,000)
Lane Cove ($440,000)
* Medium Apartment Prices; Source RP Data on 3 June 2009.
Current value buying areas – houses
We’ve seen significant declines in median house prices in some of Sydney’s best suburbs, indicating that greater value is now available for families and upgraders in outstanding locations – and probably only for a short time. My top ten value suburb picks are:
Breakfast Point (-47 per cent) *
North Avoca (-38 per cent)
Palm Beach (-30 per cent)
Bellevue Hill (-23 per cent)
Pearl Beach (-20 per cent)
Northwood (-20 per cent)
Wombarra (-19 per cent)
Seaforth (-18 per cent)
Kensington (-17 per cent)
Northbridge (-16 per cent)
* 12-month price changes; Source RP Data on 3 June 2009.
First home owner demand continues to fuel the market and confidence is cascading upwards
Rental Vacancy Rate continues at around 1.3 per cent, half the historical average
Early indications suggest increased listings over the next 3 months
Increasing enquiry and purchases from Hong Kong & Chinese buyers
Buyers continue to prefer variable mortgage rates to fixed rates
There are some early signs of recovery in the hard hit US and UK residential markets.