The Sydney property market bounced back in February with clearance rates well over 70% after it spent the last couple of months of 2015 in the doldrums.
February can be a bit of a red herring month as auction clearance rates are often at their highest point for the year. So now that March is upon us we can start to get a sense of what the Sydney property market might do in 2016.
Auctions tend to be more successful in February.
Every new year we look forward to seeing more property hit the market after Australia Day. The problem is, there is so much pent-up demand from the Xmas/New Year lull that we often see these new listings get snapped up as soon as they have their first open house.
Normally it takes a few weeks – sometimes a couple of months – before stock levels build up and the demand levels come down. And during this period, we often see a spike in prices and auction clearance rates as competition drives the market. When the supply begins to meet the demand again, we see a slow-down and prices sometimes return to pre-Xmas levels.
What happens in a hot market?
In a hot market, however, prices might level off a bit around April, then continue to climb as the cooler months once again limit the supply of new stock. Last year, clearance rates rose steadily until July, with auctions still very competitive until increased spring stock levels had a dampening effect.
The whole of Sydney doesn’t follow the same pattern.
Sydney is a big place and not all suburbs and regions perform the same. For instance, in a falling market, you will see the outer suburbs record a sharp drop in their clearance rates while the Inner West and Eastern Suburbs can still perform strongly. A couple of weeks ago, the Sydney wide clearance rate was a respectable 75% while the city and east were a staggering 90%!
Given this, it’s important that buyers understand what stage the property cycle is in. When a boom is over, prices outside the 10km radius of Sydney’s CBD tend to fall sharply and the best time to buy is after they have bottomed out. Of course, you won’t know that you have hit the bottom until prices start to rise again, so that is really the safest time to buy if you want to maximise capital growth. Just be sure to sell at the next peak!
If you are buying in an inner ring suburb you will find that the market does not perform in the same way and you will not experience the same peaks and troughs. Inferior properties (think main roads) will sharply rise and fall in value, but good quality real estate will plateau in a really flat market or grow at a rate which is determined by market conditions at the time. It is certainly possible to pay to much, however, if you are unaware of the seasonal impact on prices.
Every year we try to predict what will happen in the coming months. Our clients want certainty and we want to be able to guide them to avoid risk wherever possible. Recently I reviewed my February blogs from previous years and was interested to find one I wrote back in 2013. This is the question I posed at that time:
“But will 2013 be a hot market? Or will prices drop around Easter?
“Well, most property analysts are predicting that there will not be much growth in 2013. They are saying that interest rates could get as low as 2% because the rate reductions we have had so far have not had the effect of improving the property market. They are saying that our current low interest rates are the new norm and the market needs further stimulus.
“So, based on this information, we will be VERY cautious about competing for property over the next two months. We certainly don’t want our clients paying peak prices in a market that will offer better opportunities over the remaining 9-10 months of the year.”
So, what do we make of this? We urged caution at the very beginning of the last boom. Looking back, I wouldn’t do anything differently. We still bought plenty of property back then – with the overriding caveat that we focus on QUALITY property and determine the appropriate purchase price BEFORE we enter into negotiations or register to bid. Our focus in that regard never changes: the right time to buy is when you are ready when you have found the right property AND when you can buy it without paying over the odds.
Further reading on this topic here:-
First published:- 2 March, 2016
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.