The end of 2022 marks the end of a tumultuous period in the world of property.
October and November continue to see mixed sales results and without sounding like a broken record, these results greatly depend on the style, type, location and condition of each property.
The lack of consistency within the market makes this a very challenging environment for both vendors and buyers.
Agents are having to be a little more strategic when it comes to the quoted ranges and be more balanced in their approach in order to get as many buyers as possible through their doors and engaged. While we come across some under quoted properties, for the most part, the majority of listings are being sold within the range or if it’s a standout property which appeals to multiple buyers, being sold just above the quoted range under competition.
The continued lack of quality properties during this spring selling season compared to previous years and the heightened costs of building materials and construction costs have resulted in pent-up demand for properties requiring little to no work. We see this continuing into the new year as general feedback from agents indicate that stock levels will remain low heading into 2023. Across Australia, October was the slowest spring for new listings since October 2012, when the market was also in a downturn.
As we head into the final weeks of 2022, properties currently listed for sale will be sold with relative speed as we head into the Christmas break, particularly if the right buyer comes along and of those, good quality homes will remain competitive as many buyers will want to see out 2022 having bought. This is becoming evident as clearance rates steady and more buyer activity is recorded.
We have also seen an increase in demand for apartments and units, which for many buyers are now the most affordable options due to rate rises. Many buyers priced out of the housing market during the price surge of 2020 and 2021, are now priced out due to reduced borrowing capacities, many having to revise their requirements.
Rental Crisis
There is an Australian wide rental crisis. Although Melbourne has lagged over other states and territories primarily due to the many residents leaving the state during the pandemic and the closure of borders to international migration. However, the tides are now changing as the number of rental listings record a 32.8 per cent drop across the city.
How did we get here? Many factors have led to this crisis however some primary factors include; increased migration, the implementation of new rental reforms resulting in many investors choosing to offload their properties, a strong selling market resulting in many investors choosing to cash out and the number of new mortgage lending trending lower for investors – the lowest since the June 2021 and 23.9 per cent below its recent peak. This decline in lending to investors is likely to exacerbate existing supply challenges at a time when demand is picking up.
As local and international migration ramps up, added pressure is expected to continue until such time as more housing options are made available either through government housing or the private sector.
Realestate.com.au PropTrack’s Overseas Search Report shows the number of searches outside of Australia are at their highest since the start of the pandemic. Approximately three-quarters of buy and rent searches come from the United Kingdom, United States, and New Zealand, although the volume of searches from India continues to increase.
Not surprisingly, the capital cities attracting the most search activity due to being large corporate travel hubs and contain major universities and better job opportunities.
Although the government have outlined plans to improve this crises, no short term solutions are provided and with fewer investors purchasing homes to rent out, limited supply coupled with strong demand will lead to heightened rents, which to date at a national level, capital city rents have risen by 7.8 per cent and regional rents up 12.5 per cent, this number is trending down however as the shift away from regional areas pull back.
All states and every market have now recorded a rental growth of above 5 per cent over the past 12 months.
Yields
The era of decreased rental prices is well and truly a thing of the past and during this time we saw rental yields significantly impacted, however capital growth rates increase significantly.
The tables have now turned and although property prices have fallen over recent months, the rate of appreciation has been stronger than the increase in rents, which has further forced gross rental yields lower. In September 2022, gross rental yields nationally were 3.8% compared to 4.1% a year earlier.
With a very tight rental market looming and the potential for property prices further declining, the rise in rental yields will continue to increase, particularly across Sydney and Melbourne where there is scope for significant rental increases as supply tightens and demand increases even further.
The lowest gross rental yields in September 2022 were seen in Sydney (3.2%), Melbourne (3.5%), and regional Victoria (3.9%). The highest yields were found in regional Western Australia (6.8%), Darwin (6.2%), and regional South Australia (6%).
Insights
Home values at a national level moved through its sixth month of decline, as values fell a further -1.02 per cent in October.
Although more regions are recording a fall in housing values, the rate of declines remain diverse. The pace of falls has eased over the past two months across Sydney and past three months in Melbourne. Brisbane gathers momentum as home values are now falling the most rapidly of any capital city or rest-of-state region.
CoreLogic’s Research Director, Tim Lawless said it is probably still too early to claim the worst of the decline phase is over. “Despite the easing in the pace of decline, with Australian borrowers facing the double whammy of further interest rate hikes along with persistently high and rising inflation, there is a genuine risk we could see the rate of decline re-accelerate as interest rates rise further and household balance sheets become more thinly stretched.”
Here is a CoreLogic snapshot of what happened in October.
· The combined value of residential real estate in Australia fell to $9.5 trillion at the end of October, down from $9.6 trillion in the previous month.
· Dwelling values in Australia are -0.9% lower over the past 12 months, marking the first annual decline since October 2019.
· While the housing market downswing has become more broad-based, the monthly rate of decline slowed to -1.2%, from -1.4% through September.
· The highest annual growth rate in dwelling values among the regional and capital city markets was across Regional SA, at 20.4%. The lowest rate of change in values was across Sydney, down -8.6% over the year.
· Sales volumes are trending lower as buyer demand slows. CoreLogic estimates that in the 12 months to October, there were 551,981 sales nationally, down -9.3% compared to the previous year.
· At the national level, properties are taking longer to sell. In the three months to October, the median days on market was 36, up from a low of 20 days over the three months to November 2021.
· The combined capital cities clearance rate steadied through October, averaging 59.5% in the four weeks ending November 6. This is down from 78.5% in the equivalent period of 2021.
· Housing finance secured totaled $25.1 billion in September. The value of secured housing finance fell -8.2% in the month, taking new housing finance -22.4% lower than a recent peak in May.
· Investor finance fell -6.0%, compared with a -9.3% fall in owner occupied lending in September.
· The RBA increased the underlying cash rate target a further 25 basis points through November. The Board reiterated further increases in the cash rate ahead, as it remains ‘resolute’ in returning inflation to target.
Overall general sentiment remains subdued and as we are now past all election campaigns and head into the Christmas break, it seems that the number of buyers deterred by rising rates and other economic factors are also decreasing as the number of people attending open homes and auctions are on the increase.
We are seeing many varying strategies being used by agents to sell a property and to extract the maximum amount from a buyer. This may entail going from an auction campaign to a private sale and eventually finding yourself being asked for your highest & best offer or summoned to a boardroom auction, all depending on the level of interest, the agent, the vendor and of course the buyer or competition. It pays to have a strategy for all scenarios worked out well in advance.
Auctions
The trend continues whereas a property at any given time can be sold prior to auction, pulled from the sale at the last minute or passed in to the best buyer and negotiated privately.
While the clearance rates are trending lower than the same period in 2021, the past months have seen a steady rate of between 60 – 70% clearance and those passed in sold shortly after.
There were 3,386 reported auctions in October 2022 with 2,350 of these sold representing a clearance rate of 69.4 per cent for the month combined.
The suburbs of Gladstone Park and Vermont reported a clearance rate of 100%. Reservoir reported the highest number of auctions at 69 followed by Mount Waverley (52).
Property Management Update
Hello December: Are you looking forward to the month of lights, trees, family, food and joy?
We are seeing a bit of a pickup in the Capital City rental markets. This is because more people are moving back to the Capital Cities and migration to Australia is back in swing. We are certainly seeing volume in the number of potential renters viewing properties which is a great indication that we are starting to see the truth in what the media are saying about limited stock on the rental market.
Our team here at Buyers Advocate Property Management are working seamlessly to secure the right renters for the properties we have available to eliminate vacancy over the Christmas period. With multiple potential renters viewing properties, our rental providers are being presented with multiple applications for their property.
Total rental listings
The total number of properties advertised for rent on realestate.com.au alone fell by 8% month-on-month in September 2022 to be 20.5% lower year-on-year. Rental listing volumes were the lowest they’ve been since mid-2003 and were 32.5% below their decade average.
Reminder
With the copious amounts of rain we are having, it is a good time to remind rental providers that gutters and downpipes should be cleaned out at least once per year. If you would like for the gutters on your rental property to be cleaned, please contact our Property Management team and they will arrange this for you.
We pride ourselves on creating an unsurpassed property management experience for all clients, rental providers, and renters alike.
If you are unhappy with the level of service you are receiving from your current Property Manager, have a chat to Rachel or Liz. It may be time for a change. If you would like a confidential chat, please contact us (03) 9818 4499.
Property Purchases
As market conditions ease, we continue to deliver great results for our clients. Here are a few below:
Investment Purchase – Ringwood
We secured this large 2 bed, 1 bath and 1 car renovated unit for our investor client at auction recently. At a purchase price of below $650,000, this unit represents great value as it sits on a 156m2 of land on title and being the front unit has great street appeal. It is also very well positioned close to all amenities and public transport.
Investment Purchase – Collingwood
As far as a terrace property goes, this one ticks many boxes. Offering 2 beds, 1 bath, 1 car accommodation and renovated throughout, we secured the keys to this property for our investor client through a lengthy negotiation process and below budget. Located in one of Melbourne’s sought after blue chip suburbs, this property will continue to perform well for our clients.
Home Purchase – Hawthorn
Sometimes the relationships you have with the selling agents can yield great results
This off market property was mentioned to us back in July ’22, a young family building their home and wanted their apartment sold without the hassles of inspections as they had a small child. Their initial asking price was way out of line with market value, so we let it be. Fast forward 5 months, the vendors expectations had become a little more realistic and after a tough, drawn out but fair negotiation, we secured the property for a great price. Exclusively negotiated, off the market with no other buying competition.
Tip Of The Month:
The Value of Options
It has never been so important than it is today for property investors, rather than focus on one property, to ensure they have multiple options available.
Often when people buy an investment property, they apply the same approach as they would if buying a home. That is, finding something that fits their criteria, that they really want and then aggressively competing to not lose the property.
This can result in paying more than the property is worth. An emotional premium may be acceptable to someone looking for a home as there may not be many other options of the perfect property in the perfect location. However, for an investment it should be a far more objective approach.
To a large extent you make your money when you buy. For this reason, it is important to know:
- what is a reasonable price to pay for a property?
- what is the likely rental yield?
- and what are the capital growth prospects?
As investments are all about what gives the best financial return, emotion should NOT come into the decision at all.
In this market we are seeing some good buying opportunities, though also many properties continue to sell well. What we are finding is that if we are considering three properties for a client, one will sell very well, one will be reasonable buying, and one will represent excellent buying.
Investing is all about opportunity cost, so the key is to ensure that you purchase the one than represents an excellent investment. To achieve this, it is essential to consider multiple options and be committed to move forward on each when the right opportunity presents itself.
We would take this opportunity to wish you all a very Merry Christmas and a safe and happy New Year.
Our office will be closing at 5pm on the 15th December 2022 and will re-open at 9am on the 9th January 2023.
While our office is closed, we do have people to assist you during this time. If you have a Buyer’s Advocate or Property Management enquiry, please call our office on 03 9818 4499 and you will be directed to the correct person for your call.
Further detailed communication will be sent to all our valued clients soon.
