Try not to get too excited, for what you are about to read is something you have probably been waiting a long time to hear: the Sydney property market has probably reached its peak.
Why do I think this? Well, there are some definite signs of buyers losing confidence. This lack of confidence breeds uncertainty and this, in turn, causes inaction.
So, what are these signs and what will happen next?
- Auction clearance rates are starting to fall.
The first indication to look for are falling auction clearance rates. We saw rates drop over 10 percentage points around Anzac Day, but this could have been written off as being due to an unofficial long weekend. And that looked to be right when they bounced back up to 80% the following weekend. Except that they dropped again to 73%, then back up to 79%. This inconsistency is a sure sign that buyers are getting jittery.
- Houses are selling pre-auction.
You may not realise but properties sold prior to auction are included in the clearance rates. Clever agents who can read the signs of a slowing market are now trying very hard to sell properties before auction day. An unsuspecting buyer won’t realise why they’ll just feel “lucky” that they have been able to avoid bidding at a dreaded auction. All the while, these transactions can mask what’s really going on because they are bolstering up clearance rates.
- Open houses are quieter.
Sure-fire signs that the market is slowing are quieter open houses. Only a few months ago we were all queuing for entry, while in the last few weeks we have noticed markedly fewer people at the inspections.
- Buyers are sick of auctions.
Some suburbs seem to have reached higher peaks than others in the first quarter of 2017. In those suburbs, buyers are now shunning auctions as they have decided they don’t want to compete anymore. Agents are left shaking their heads wondering where all the buyers have gone. They have probably gone to the suburb next door, where they perceive greater value. In the meantime, those agents who subsequently advertise the property at a reasonable price are negotiating very quick post-auction sales.
- Vendors prices aren’t aligned with the market.
During any boom, vendor price expectations are often ahead of the market at the commencement of their auction campaign and the market effectively rises to meet them over the four-week lead-up to their auction. But when the market changes, the effects on some campaigns will be immediate and the gap between vendor and buyer expectations at this juncture can appear larger than they really are. It’s all perception really. Compared to rapid forward motion, a sudden halt can feel more like going backwards.
This period of uncertainty can last for a couple of months until we all get used to the new norm. There can be great opportunities for prepared buyers during this hiatus. While others dither, a confident buyer can find themselves in the right place at the right time, ready to throw a lifeline to a motivated vendor.
So, how long is it going to last?
The last time this happened was in April 2016. It only lasted a couple of weeks before the Reserve Bank dropped official rates and the boom kicked off again. The time before that was in September 2015, where a flood of spring stock kept the boom at bay until it kicked off again in January 2016. Right now we are on the cusp of winter, when stock levels are traditionally low, so this may keep the market simmering for a while. There doesn’t appear to be any interest rate drops on the horizon (on the contrary, watch out for banks bumping up rates!), so this could keep dampening buyer interest.
We expect that the market from here will probably level off, meaning that substandard properties in blue chip locations will see an increase in days on market and greedy vendors won’t achieve their reserves. Growth will slow in blue chip suburbs and prices will fall in more volatile areas. Click To Tweet
As buyers, vendors and agents adjust to the “return to normal market conditions” we will see that quality stock in good areas will continue to attract buyer interest and everything else will struggle. And here is the big teaser – we have a Predictive Index for Capital Growth™ and we use this to measure all our client purchases so they can be confident in good markets and bad. Please contact us here if this is an advantage you would like to have on your property search.
Good Deeds buyers tips are intended to be of a general nature. Please contact us for advice that is specific to your individual circumstances. You may also need to get advice from other professionals such as an accountant, mortgage broker, financial planner or solicitor.