Real estate in Sydney is entering a really interesting phase now, where prices and trends are no longer governed by fundamentals and supply and demand, but instead they are being driven almost solely by the media. What I am finding really fascinating is how even sensible publications are using sensationalist headlines despite hiding reasonable facts within their articles.
An example is a headline in the AFR two weeks ago s
tating ‘Sydney Real Estate Growth to Plummet to 1.5% in 2016’. Plummet? This sounds like terrible news! But we’re talking about ‘growth’ here, not prices, so the article is actually stating prices are still anticipated to rise next year – and let’s be honest, after a run of 15% returns year on year for the past two years 1.5% growth doesn’t sound bad.
The media is focusing heavily on auction clearance rates which have fallen from an average of 83% (90% on the occasional weekend) to around 60% currently. Six month charts showing auction clearance rates are published in papers forecasting the ‘bursting of the bubble’ and the end of the market for sellers, but if we take a longer time frame (remember real estate works in seven to ten year cycles, not six months), we see that the historical average is actually 59.8% since 2008. So the market has actually normalised – it has become a fairer market for buyers and sellers. Sellers now have to be realistic on prices and buyers are in a better position to negotiate.
Let’s look at interest rates, as the media is blaming the interest rate rises by the big four banks for subduing buyer interest. The interest rate rise is interesting as the banks are now out of step with the RBA. This has created a public perception that low rates are over, but in fact according to Bank of America Merrill Lynch and the Bank of England, we still have the lowest short and long term interest rates in 5000 years! And with the big four raising rates the RBA is in a stronger position to cut next year – ANZ believes they will cut twice more in 2016 to help boost the economy.
So what are we seeing in the market now in Lane Cove? Buyers have certainly been spooked, with a number telling us they are sitting on the sidelines to see what happens. There are fewer bidders at auctions but the results are not changing – every property is still selling either at auction or shortly after, for prices we anticipate. Population growth is still high, there is limited supply and the market is still good. The 90 percent clearance rates we saw earlier in the year were not sustainable and not healthy for the market, so the normalisation we have now is a good thing.
Author: Paul Nees