By John McGrath
www.mcgrath.com.au/
The busy start to 2009 has gathered further momentum with our auction clearance rates for most of our offices pushing well above 70 percent since Easter. Whilst the majority of the strength has centered on the lower end of the market, I’m also seeing sale results more regularly in the $1 million and above range significantly exceeding expectations.
Bottom-up residential recovery continues
The Sydney property market has currently split itself further by price bands than the traditional geographic segmentation, with a bottom-up led recovery well underway. The first home buyer surge has been quite unprecedented, with a rapid increase in buyer activity below $500,000 in almost every market. There’s no doubt that the boost is having a knock-on effect, directly impacting the second home buyer market. This has been driven by several key factors:
- The 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 owner grant boost which is expected to reduce from October 1st and cease at the end of the year, the other drivers are likely to continue to be in place for some time. I’ve 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 performing well going forward. Rising unemployment is quite likely to be the other contributing negative factor to this market, and if unemployment were to hit ten percent, my view on the sustainability of current demand and prices would be revised.
Market observations
Here are a few other observations I’m 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 mortgage sales conducted in the inner ring of Sydney (within 15km radius of CBD and on the coast), however I expect there’ll 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’ll always be highly sought after. I suspect the top end is about 15 percent off its highs, although we’ve 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 percent which is about half the ideal balance of three percent (three percent 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 property being built. I expect rents in most areas will rise between seven and ten percent in FY10, 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’ll 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 five percent in the next six months off the back of a stabilising economy.
- 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 percent 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 percent decline in many markets). I’ve had similar comments last week from London for the first time as well.
Buy in these Sydney 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 and ten percent during the 2010 calendar year.
For investors and first home buyers looking to buy between now and Christmas in Sydney, I have ten suburbs that I highly recommend as areas that provide a great lifestyle and will outperform the market.
- Brighton Le Sands ($400,500)*
- Erskineville ($429,000)
- Glebe ($409,000)
- Dulwich Hill ($366,500)
- Annandale ($408,000)
- Leichhardt ($489,000)
- Neutral Bay ($520,000)
- Artarmon ($510,000)
- Lane Cove ($440,000)
- Freshwater ($420,000)
* Median apartment prices; source RP data on 3 June 2009.
Current value buying areas in Sydney (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 in Sydney are:
- Breakfast Point (-47%) *
- North Avoca (-38%)
- Palm Beach (-30%)
- Bellevue Hill (-23%)
- Pearl Beach (-20%)
- Northwood (-20%)
- Wombarra (-19%)
- Seaforth (-18%)
- Kensington (-17%)
- Northbridge (-16%)
*12-month price changes; source RP data on 3 June 2009.