The market has well and truly moved into an upswing phase. This presents great opportunities for buyers willing to jump in early. Unfortunately, most buyers wait until all the signs are positive and the media have all jumped on the bandwagon. This is often when it is too late as once fear of missing out (FOMO) sets in prices run even higher and the competition is fierce.
On the ground this does not look far away. The last few auctions we have attended have seen in excess of 4 bidders for each. This is in the inner suburbs of Melbourne within 10 kms but it will not be long before this is widespread. Also, last weekend a first open for inspection for a 3 bedroom villa in Ivanhoe was attended by 101 groups. This is a lot of people thinking of buying.
The reality is the supply is very low and while the media keep talking about distressed sales due to the so-called mortgage cliff, this will only impact a small portion of borrowers. Even the RBA in their April Financial Stability Review said, “there are very few signs of household stress” and “non-performing loans as a share of outstanding loans remain around the lowest level over the past decade”. It also stated, “the share of bank loans in, or close to, negative equity is very low and well below pre-pandemic levels”.
While there is no doubt about the pain that higher interest rates are causing people the likelihood that they will be forced to sell is very low for most people. A large percentage of people also built-up mortgage buffers during covid as the money they could not spend was allocated to savings.
So, if supply remains depressed and demand is increasing, there can only be one direction the market is heading and that is higher. So, if you have been considering buying a home or investment it may be wise to look at entering the market now before prices explode and FOMO sets in.
In this month’s newsletter, we provide some insights from corelogic, property management update, some recent purchases and tip of the month – the importance of scarcity value.
Insights
Source: Corelogic April 2023
The market has started to increase.
CoreLogic’s Research Director, Tim Lawless, put the rise down to a combination of low advertised stock levels, extremely tight rental conditions, and additional demand from overseas migration. “Although interest rates are high and there is an expectation the economy will slow through the year, it’s clear other factors are now placing upwards pressure on home prices,” Mr Lawless said. “Advertised supply has been below average since September last year, with capital city listing numbers ending March almost -20% below the previous five-year average. Purchasing activity has also fallen but not as much as available supply; capital city sales activity was estimated to be roughly -7% below the previous five-year average through the March quarter.
“With rental markets this tight, it’s likely we are seeing some spill over from renting into purchasing, although, with mortgage rates so high, not everyone who wants to buy will be able to qualify for a loan. Similarly, with net overseas migration at record levels and rising, there is a chance more permanent or long-term migrants who can afford to, will skip the rental phase and fast track a home purchase simply because they can’t find rental accommodation.”
Each month the CoreLogic Research team puts together a Housing Chart Pack, with all the latest stats, facts and figures on the residential property market, such as the combined value of residential real estate, sales volumes, and the trend in new listings.
Here are this month’s highlights*:
- The combined value of residential real estate in Australia rose to $9.4 trillion at the end of March, from $9.3 trillion in the previous month.
- Dwelling values in Australia are -8.0% lower over the past 12 months, the largest annual decline on record.
- Despite a large annual decline in home values, the monthly results saw national home values lift 0.6%, and capital city home values increased 0.8%.
- The highest annual growth rate in dwelling values among the regional and capital city dwelling markets was across Regional SA, at 13.3%. The lowest change in values was across Hobart, where home values declined -12.9% in the past year.
- The rolling 28-day change in the combined capitals home value index was 0.9% in the 28 days ending 6 April.
- Sales volumes trended slightly higher through March to an estimate of 44,124 in the month. On an annual basis, sales are -20.7% lower year-on-year.
- Capital city home values are taking longer to sell, with median days on market at 34. This is up from a low of 19 days in the three months to November 2021. Properties are taking notably longer to sell in regional Australia, with median days on market up to 50 in the three months to March.
- Median vendor discounting nationally has deepened to -4.2%, compared with -3.1% in the March quarter of 2022. However, capital city discounting rates have eased through 2023 to-date.
- In the four weeks to 2 April 2023, the volume of new listings totalled 36,464 nationally. New listings have now moved through a seasonal peak, and are likely to trend lower through the cooler months of the year before rising in spring.
- The combined capital cities clearance rate averaged 65.4% in the four weeks ending 2 April 2023. While this was a much stronger result than in the final weeks of 2022 (averaging 55.1%), the combined clearance rate average did drop slightly on the previous four week period (65.8%).
- Annual growth in rent values held steady on the previous month in March, at 10.1%. The most rapid annual rise is evident in unit rents across Sydney, Melbourne and Brisbane, where rents have increased around 15 to 18% annually.
- The chart of the month shows the quarterly change in capital city house and unit values across different value tiers. An improvement in capital growth trends is most evident across the top 25% of home values.
*Data is to the end of March 2023 unless otherwise specified.
Property Management Update
Here we are in Autumn, where has this year gone?
Our Property Management department are keeping busy with analyzing the rental market and assessing rent increases, ensuring the best outcome for both rental providers and renters.
Vacates are at a record low across the board for rental properties and we are finding that our renters are staying put, many wanting security, signing new fixed term agreements.
We are seeing multiple groups through the open homes that we are holding and we are receiving a number of applications on each property
Annual growth in rent values held steady on the previous month in March, at 10.1%. The most rapid annual rise is evident in unit rents across Sydney, Melbourne and Brisbane, where rents have increased around 15 to 18% annually.
Gross rent yields were fairly steady over the month at 3.9%, however yields have risen from 3.2% in the same month last year. Gross rent yields in March were highest in resource-based markets of Darwin, regional NT and regional WA.
Property Management Tip for Residential Rental Providers
Landlord Insurance is something that we highly recommend every landlord / RRP have in place. We recommend the following insurance providers. If you do not have this cover, please reach out to one of the below providers and arrange this immediately:-
o EBM RENT COVER – 1800 661 662
o TERRI SCHEER INSURANCE – 1800 804 016
o PROPERTY INSURANCE PLUS – 1300 307 072
Property Management Tip for Renters
When applying for a property, ensure that your application is complete and that when possible, you have advised your references to expect contact (including rental references & employment references). Try to put your application in as soon as you have finished viewing the property as the processing / checking of your application starts the minute you submit it.
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
Although supply has been very low, we have continued to deliver great results for our clients. Here are a few below:
Home Buyer- Preston
1st Home Buyer – Hawthorn
Downsizer- Brunswick
Tip Of The Month:
The importance of scarcity value
If there is one important factor that drives the performance of an investment property it is the value of scarcity. Put simply scarcity means “the state of being scarce or in short supply; shortage”.
Given property prices are driven by supply and demand, it is common sense that the first rule of property investing relates to the scarcity value or the lack of supply.
Scarcity can come in many forms. It relates to what is truly unique about the property and could include the style, land size, location, accommodation, character, position and so on. This should be the first question you ask when assessing a property, “does this have scarcity value”.
If it is an apartment, whereby it is 1 of 300 with very similar floor plans, this is unlikely to pass the test. If it is a house and land package in a new estate, whereby they are still releasing land for future development, probably not. If it is a new home in a street and suburb full of similar homes, this is unlikely to pass as well.
This may all seem fairly obvious, however a large number of people do not run this ruler over their property investing. There are a lot of spruikers out there that would happily take your money by convincing you their product is worth buying. But if it does not pass this test, don’t buy it!
