Sydney Property Market Update-June 2008

JUNE 2008 – Sydney Property Brief

A bit of history

In the last 18 months, the sentiment surrounding the property market in Sydney’s Eastern suburbs and Lower North shore has been on a bit of a roller coaster.  The last big property cycle ended at the end of 2002.  Between then and early 2007, the market was relatively flat.  By early 2007, all factors were pointed towards to start of the next property cycle, interest rates were low, rentals were increasing, and vacancy rates were extremely low.  Supply of new homes was not even close to sufficient to match demand.  A lot of global funds were flowing in to the property market from expats earning big dollars…..we all know what happened next.

By the end of 2007, vendors were listing their homes and achieving high prices on their properties.  The number of buyers well and truly out numbered the number of available homes.

What is happening now…..

Over the past 5 months, we have been affected by the sub-prime crisis in the US, interest rate rises, stock market crash, petrol price rises and the uncertainty of company bonuses.

From the buyers’ perception, many people are holding off “to see what happens”.  Potential buyers are concerned that prices will fall so they are nervous about buying at the moment.  From the sellers’ perception, with a reduced number of buyers vying for their property, they are reluctant to put their home on the market. 

In the markets I work in, namely the Eastern Suburbs and Lower North Shore, I have noticed a significant reduction in the number of homes that are being successfully sold through an auction campaign.  For example if I compare the auction clearance rate in the six months to November 2007 with the six months to May, in Mosman the rate has gone from 63% to 45%; Woollahra has gone from 67% to 45%; and Bondi has gone from 86% to 55%.  This is just one indicator that the demand has dropped significantly.

I am now starting to see significantly more quiet listings, having more conversations with agents about vendors understanding the current market and adjusting their price expectations i.e. reducing their prices. 

With many future buyers sitting tight and not competing for a property, it is a great opportunity to buy a great home at a great price.  Will it get better, from a buying perspective?  It might.  Although what most people will do is wait until everyone else is looking at buying and follow everyone else i.e. once again competing for properties when the market in an upward phase.

It is a very different environment to 6 months ago and a different strategy is required to secure the right home at a good price.

If you, as a buyer have time on your side, why wouldn’t you be actively looking at the market at the moment?  Generally, it is difficult to pick the exact moment when the property is at its peak or trough.  As we are not in a growth cycle, buyers do have time.  If it was that easy, it certainly wouldn’t stay there for long.  We do know however, every 10-15 year's, the property market becomes a Buyer's market, we believe that we are entering this cycle and the next 12 - 36 months will be just that. There are a lot of similarities between the current climate and the recession in the early 90’s.

The Global market volatility will affect every segment of the market – it’s unavoidable, some of course more so than others.  People do not seem to be concerned about the interest rate hikes; they are more concerned about their erosion of wealth through their exposure to the equity market.  This is starting to impact the Eastern suburbs and Lower North Shore and will affect properties above the $3million mark.  Vendors are being forced to sell as margin calls continue.  Some are trying to sell off holiday homes but are competing with too many others also trying the sell off their holiday homes.  Just look at Palm Beach, auction clearance rates are at 9%; the median price has fallen 37%; and days on market has increased from 101 days to 195 days.  They’re pretty scary stats for those hoping to sell off these properties to shore up their position.

It is important now more than ever to really understand what is happening and how it is impacting on prices.  I am coming across great opportunities that can be capitalised on now.  These opportunities won’t stay around for ever but the right strategies need to be in place to make the most of these.

Represented buyers will have better access to these opportunities and will be confident in the pricing to be able to move forward.