September was a busy month for buyers, as the sense of urgency among buyers grew stronger as we enter the last quarter of 2021.
Recall in February this year, the market was moving at its fastest rate in 17 years. Now, new data from CoreLogic show housing values have soared by 20.3% in the past 12 months – the fastest annual rate since June 1989. Astute players saw the writing on the wall before the CoreLogic figures were even released.
With this, we’re seeing tell-tale sales that buyers are feeling the pressure amid rising housing prices and competition. For example, a 580 sqm property at 11 Butler Street, Brighton, sold at a Zoom auction with three bidders, who were all land buyers. While expectations were around the $3 million mark, we did think the market might have seen it push to $3.4- $3.5 million. It sold for$3.75 million, which represents $6,500 per square metre!
Avoid rushed decisions based on FOMO
One of the reasons why buyer competition has been so tough is weak supply levels, as lockdowns continue in Melbourne.
This market can drive buyers with FOMO to make poor decisions, just so they can get their hands on a property.
Recently, we’ve noticed clients are lowering their criteria to increase their chances of a purchase. One client raised that she wouldn’t mind buying on a semi main road with a train line, another mentioned a property with a petrol station next door. Another client wants to build a significant dream home with a south-facing rear. We gave them all a flat-out no.
It’s important to remember that all that glitters is not gold. With the market on the move, the challenge for us is to help clients who feel rushed understand where the market is currently in the cycle.
We can understand why some would consider lower-quality properties when the market is hot but if you’ve been around like we have, you’ll know that the property market is cyclical. Once the heat is out of the market, properties that suffer first tend to be the ones compromised in some way. The effects of an impulsive decision stay with you long term. Our advice is to stick with the parameters when shopping. If you’re unclear what they should be, that’s when you should speak with a professional buyers agent.
How we evaluate and assess a property’s value?
Discussions that have been arising often recently has been around: should we engage on this property?
Generally, if we give it a 7/10,the property is worth considering. If it gets anything between 8 and 10, then discussion around due diligence is likely the next step.
When it comes to assessing the value of a property, an issue we have run into lately has been pricing traps. When we see what a property sold for several years ago, the layperson usually assumes this is fair market value.
But is it really?
We always invest the time to dig a little deeper into what the current vendors paid for the property – and it pays off.Recently, we analysed a property for a client and the price paid three years ago made the current asking price makes sense. We delved deeper and found the vendors had paid too much and they were trying to recoup this.
By assessing a property’s true value, we help our clients avoid overpaying, saving them a great deal of pain and money. We do this by consulting valuation experts, using our trusted networks for intel, and we also have a depth of knowledge in this area ourselves.
Simplifying the booking process
Phone tag is a killer in my job. But this is a thing of the past, thanks to Andrew Luke of Jellis Craig who has started using Calendly. Simply jump on, choose your time and book in a 10-minute time slot to view the home. What a time saver! We all know it’s a challenging time for agents and this method makes life easier for everyone. Agents can get to know the buyer at the property and this frees up everyone’s time.
In September, the Reserve Bank gave further certainty that it would not be lifting the cash rate – currently at 0.10% – until 2024.This only pushes up market confidence and a somewhat heated property market. More recently, APRA has moved to increase the serviceability buffer from 2.5 percentage points to 3. Macroprudential lending restrictions is widely expected to be the back-up handbrake for an overheated property market. While the economy isn’t strong enough for higher interest rates, stricter lending regulations(and more may be on the way) will no doubt slow this market. This will be tricky, as it is evident that property is the only thing holding our economy up. Australia’s GDP is looking fairly standard,thanks to the rebound we are currently in. The question posed is:is the current inflation structural inflation or transitory? Currently we are diagnosing it as transitory due to supply chain issues around the globe. But when does this shift from transitory to structural?A structural inflation may arrive at the door step of interest rate rises which would then flow on to the property market.
A black swan or perhaps just a cygnet?
A black swan in market terms is an unforeseen event with severe consequences. The one that looms largest right now is COVID-19, but think back and it’s hard to forget the collapse of Barclays bank.
A crisis that has been unfolding in the past few weeks is Evergrande, one of China’s biggest, yet most indebted, property developers. To put the scale of this into perspective, Evergrande owes $US300 billion ($400 billion) and has 800 projects underway across 200 cities in China. It has missed two bond interest repayments in recent weeks.
What does it have to do with house prices in South Yarra? If such a real estate giant were to collapse, there are concerns that any domino effect could affect the Australian economy.Its far-reaching influence has our own financial regulator APRA worried, as they begin to investigate whether Australia’s big four banks have any exposure to the developer.
Evergrande has raised the white flag but contrary to earlier expectations of a bail out, Beijing does not appear to be coming to their aide.The Evergrande fiasco has already seen iron ore prices dive by more than 60% in about six weeks.Off the back of this, two Australian mining companies have announced a suspension in operations.Iron ore is our biggest export and China is the world’s number one importer of it. No doubt, there’s more to come.
Jump a few steps and this black swan can rock confidence–confidence in jobs, property, and spending. We all know what markets do when confidence is knocked – they sit on their hands.