By DAS NAIR
In the first of this two part series ( Click here to read first article) , we look at indicators that offer an overview of the real story behind Sydney’s property market.
Sydney’s property market growth started late in Q2 2013 or early Q3 2013. With 2 solid years of property growth, we have seen so many suburbs moving into the $1M median price bracket. Auction clearance rates remain strong, or do they?
Property pundits in the past few months have had a field day evaluating the current property prices. Some say Sydney property is still undervalued, Others say we are way overvalued. Some go further and quantify the figures e.g. “The massive Australian property boom that appeared to be in its dying stages, is far from over after houses across the country are now overvalued by 12%” – Daily Mail Australia, 13th July 2015.
Overall all there is a general feeling that Sydney Housing is indeed slowing and if we are to refer to Mathew Cranston’s article in the Australian Financial Review (July 14th 2015) he refers to 6 specific indicators and elaborates on them, referencing some of leading property experts in the area.
THE SUPER 6 INDICATORS
Sydney recorded its lowest clearance rate of the year at 80% on the weekend, according to Domain’s latest auction data, which is the first sign of a slowing market. “Over the last six weeks we have seen five drops and the trend is clearly down. Not only is the clearance rate falling, it’s starting to converge with the rates we had the same time last year. If we see the trend continue we may see the clearance rate fall below where they were a year ago and that would be a
very interesting reflection of where we are in the market”, Domain’s senior economist Andrew Wilson said.
Another key indicator, but far less empirically reliable, is the gap between the price a house successfully sold at auction and its reserve. There is no measure for that except anecdotal evidence but once the percentage difference comes back down then the confidence of vendors starts to fade.
Listings and speed of sale
Vendor’s confidence forms another key indicator of a slowing market. Generally, that is judged by the volume of listings. The number of old and new listings in Sydney is down 12.8 per cent from this time last year, according to CoreLogic RP Data Property Market Indicator. However, new listings alone or those which have not been advertised for sale over the past six months climbed to 7690 this week – up more than 25% on the same time this year.
CoreLogic RP Data’s Cameron Kusher said these figures showed stock coming to market was being sold quickly so there was a lower amount in overall listings. And because older stock is being sold so quickly that phenomenon is encouraging more vendors to bring a greater number of new listings to the market. “You would usually see listings ease at this time of year but we haven’t that” said Mr Kusher. “There is so much urgency in the market. People want to buy properties and even at this slower time of year people are bringing their properties to market”. He said that because houses were being sold in record time. This created a situation where there was approximately three months’ supply in Sydney. While the level of supply and the speed at which they are sold are clearly major components in price determination, the types of demand such as investors, non-investors or first home buyers are just as crucial.
Type of buyer
In Monday’s (13/7/15) official housing lending figures, investors showed themselves to be the key borrowers for homes purchases. They accounted for 62% of the market, up from 57% a year ago. While those figures come from the
Australian Bureau of Statistics there are other statistics that show a different trend.
Australia’s biggest wholesale mortgage broker AFG reports a large decline in investor property loans over the month of May giving the clearest signal yet that Sydney’s housing market is starting to cool.
The mortgage broker said investment loans accounted for 36.9 per cent of the national pool of mortgages down from a peak of 43.1 per cent in April.
Investors have a deeper pool of funds to rely on when they bid for homes compared with non-investors. Their demand can often fuel how high prices go and when they start to exit the market the prices can soften.
The cost of money is also a clear driver of both demand and price. While some pundits have predicted interest rates will stay low for another 18 months or even hit zero in Australia, others feel the cost of borrowing is heading the other way and will start to dampen house prices.
Charter Keck Cramer’s strategic research principal Toby Adams says rates will soon start to affect the market.
“Interest rates have been at record lows and have stimulated a lot of investment. Although I don’t want to speculate on interest rates I would expect a ratcheting up of a few basis points which will take some of the heat out of the market.”
The last indicator, and certainly not the least important, is employment. Jobs give people the ability to afford loans to buy homes. NSW had the largest increase in employment, in seasonally adjusted terms, in June with an extra 11,300 people employed. However, the official unemployment rate for NSW has been jumping up and down for the past two years. The rate ticked up to 5.8% in June from 5.7% in May as more people looked for work.
As Sydney’s house prices have jumped in the past two years, unemployment has increased as well from 5.2% in 2012 and 5.4% in 2013.
So there you go, fundamentals have always played a role for us in understanding the market and while we can look for more data, the above 6 is already telling us
something. How we interpret the data for us to make decisions, is crucial.