June 2011 – Now is a good time to buy

0 CommentsTuesday • June 28, 2011 • by Henry Wilkinson

In our 12 years operating as buyers agents we have observed a general tendency to the “herd mentality” with property buyers.

When property prices are strong and rising, buyers feel more confident and are sometimes panicked into a purchase, and are therefore active in the market only when competition is at its strongest and prices are rising.

Conversely we see buyers leave the market when there is evidence of weakness, and when competition is at its lowest and there is a fear of falling prices.

Logic suggests that the ideal time to buy is when others are not. The great profit makers throughout history of all markets (property, stocks, currencies & commodities) are usually the ones who buy in the downtimes and then sell in the boom.

Regarding the Sydney property market, our experience and past observations have shown that conditions will always improve and strengthen over time. The cycle is often a 3 steps forward one step backwards model.

When we look back over the past 12 years of purchasing property for our numerous clients, the people who have made the best investments have been the ones who have bought in the slower market cycle.

We think Sydney is now offering some of the best property buying conditions for quite some time. The start to 2011 has generally been sluggish, and according to APM, the first 3 months have seen a modest overall fall in house prices of 0.4% (after a 1.1% growth in the previous quarter) and unit prices of 0.7% (after a flat result in the previous quarter). Auction clearance rates have mostly hovered around the 50-60% area.

The APM figures represent an average for the whole of Sydney and naturally there have been varying results within the sub markets. Some areas and market segments continue to fare better than the reported average – we are seeing continued evidence of relative strength in the inner ring suburbs (within 10km of the CBD) in the $600,000- $1,500,000 price brackets – most notably the Eastern Suburbs and Inner West. Conversely other market segments are under performing against the Sydney average – notably outer suburbs, some middle ring areas and also the premium market.

For investors rental returns have risen, particularly in the low/medium price bracket for units in the Inner City, Harbourside and Beach areas. Rental vacancy rates are now at 0.9% for inner ring suburbs within 10km from CBD. Middle ring areas vacancy rates are at 1.4% improving slightly (0.3%)

Early concerns regarding expected interest rate rises, the high $AUD deterring overseas property buyers and some gloomy economic information from the USA and Europe have all combined to put the brakes on prices in the Sydney market, as a “wait and see what happens” sentiment has developed. In our opinion this sentiment is currently presenting property buyers with some excellent opportunities.

The overall economic fundamentals should provide a good deal of confidence to buyers who are currently holding back.

• Although the ABS figures show a contraction in the economy of 1.2% for the March quarter, most economists are expecting this to be reversed in the June quarter with mining production returning to normal after disruptions caused by recent natural disasters
• Unemployment is very low – according to the ABS, the unemployment rate in NSW fell from 5.1% in April to 4.9% in May.
• Interest rates are still relatively low in historical terms and appear unlikely to rise by much in the short to medium outlook
• Immigration is still very high to Sydney, and the population increases exceed the amount of new development

Please contact us for a discussion on how you can take advantage of the current buying opportunities in the Sydney market.

THREE STEPS FORWARD, ONE STEP BACK

0 CommentsThursday • June 3, 2010 • by Henry Wilkinson

More Favourable Conditions For Sydney Home Buyers Have Arrived

After a very heated start to the 2010 Sydney real estate season, recent weeks have seen a welcome calm in the frenzy. With volatile stock and currency markets resulting from concerns surrounding European debt levels, the real estate market has come somewhat off the boil.

This has been reflected in auction clearance rates going from well over 70% for March and April to around 63% in late May.

During the first few months of 2010, we as buyers’ agents have seen an unprecedented surge in prices – the highest short term spike since we commenced operations in 1999. Many areas of Sydney saw massive rises of 15%-20% between January and late April 2010, depending on the price segment and area. This has been as strong if not stronger than the overall 29% gains to Sydney prices that we saw in the frenzy of 2002.

In our opinion the market steam has come off around 5% over the past few weeks and we believe that the property market is likely to be in a “holding pattern” until world financial markets strengthen.

Provided that financial markets stablise, we expect the Sydney market to perform at more realistic and sustainable levels.

Favourable contitions remain for the Sydney property market and these include:

• Recovered economy, having experienced a GDP growth rate of 2.7% for the 12 months to March 2010
• Unemployment at a low of 5.3%
• Relatively low interest rates which appear to have now stabilised. The RBA in their recent June meeting stated that interest rates are now at “appropriate levels”.
• High levels of immigration continue to stimulate demand for housing
• Lag in property development will continue an under supply of housing
• An expected continuing of the shortage of listings over the winter months
• Lower Australian dollar has substantially increased the purchasing power of expatriate Australians and foreigners purchasing Australian real estate

We believe that a calming in the frenzy can only be a good thing for buyers and that conditions for buyers are now more favourable than they have been since mid 2009. A change in the “buy at all costs” mentality of early 2010 has seen more sense return to the market and has created some good buying opportunities in the current measured market.

Market Report dated 3 June 2010

2009 Summary

0 CommentsMonday • March 1, 2010 • by Henry Wilkinson

The start of 2009 was characterised by buyer reluctance and extreme caution in the midst of the global financial recession.

However from around February the lower end of the market ($400,000 to $700,000) was kicked along by the Government’s increased first home owner’s grant and record low interest rates.

Around May/June confidence reappeared in the mid market ($700,000 to $1.5M) and a couple of months after that, the higher end of the market started to show some signs of improvement.  As economic conditions in Australia improved and confidence strengthened in financial markets, gains were made across all areas of the market.

Price growth across Sydney was recorded at over 10% across the board in 2009, with higher rises at the lower end of the market and more modest gains in the premium market.

2010 – What’s in store?

The 2010 real estate year has started strongly, with auction clearance rates across Sydney high – between 70 and 83 %.

As buyer’s agents, we are seeing large numbers of people attending open for inspections for both houses and units.  Often there are lengthy queues at the front doors on Saturdays. The number of registered bidders at auctions is also very high, and the bidding is generally very competitive.

The market appears to us to be as strong as the boom of 2002/2003 when price rises were 29% and 15% respectively. Whether the overall gains for 2010 will be at these levels remains to be seen.

Some of the main reasons we are seeing the current boom and increased prices are :

1. Official interest rates are still at very low levels historically with the official reserve bank cash rate at 4% – still 3.25% less than rates were 2 years ago. Although the trend appears to be for higher rates in the future, most buyers have factored this in, and few economists are predicting rates to return to those higher levels in the medium term.
2. The Australian economy is performing very well compared to other OECD economies with economic growth at 2.7% for the past 12 months, and solid growth forecast for the remainder of 2010
3. Relatively low unemployment at 5.3% (compared to nearly 10% in the USA),  is increasing buyer confidence to purchase property and borrow money
4. Return of the property investor to the market
5. Relaxed Foreign Investment Review Board (FIRB) regulations which now make it easier to foreigners to purchase residential property in Australia
6. Low supply of stock. This is a continual problem particularly in the sought after areas of the Eastern Suburbs, North Shore, Northern Beaches and Inner West. Our discussions with selling agents indicated that there is unlikely to be any increase in the supply of listings in the short to medium term
7. Increased immigration to Sydney
8. Lag in new developments around Sydney
9. Sydney appears to be into a positive new property cycle
10. The media is very positive about the Sydney residential market, and this in itself usually plays a very important part in determining confidence of buyers

Therefore in our opinion, provided the international economy continues to stabilise, the Sydney residential property market is set for continued strong growth throughout 2010 in all sectors.

Sydney House Prices Continue to Climb

Source : Yahoo 7 On the House
Thursday 11th March 2010

Sydney’s house prices have defied even bullish forecasts to post strong gains at the start of 2010, led by the Eastern Suburbs, Inner West and Lower North Shore, with many predicting the momentum will flow through to the rest of the year and into 2011. Buyers are being urged to enter the market now before prices move further away from them.

“What were considered bullish forecasts of ours six months ago have turned out to be on the light side,” said Harley Dale, chief economist at the Housing Industry Association (HIA). “Things are going even more strongly than we have forecast. On both fronts (activity and prices) it’s clear that, yes, we are in the midst of a housing recovery in Sydney.”

According to REX data, Sydney’s median house price rose 5.63 per cent to $525,000 in the past rolling quarter, while the Property Price Index, which factors in repeat sales, rose 3.92 per cent to $523,496 . It has outstripped gains in other NSW cities, including Wollongong where median prices were up 3.7 per cent to $362,950 and Newcastle where prices gained 1.54 per cent to $330,000. Sydney has also outperformed other capitals such as Brisbane where median prices rose 1.32 per cent.

Sydney’s housing recovery follows years of underperformance – the median Sydney price fell as low as $440,000 in March 2009 – after the market was affected by a sluggish local economy and the global financial crisis. But a stabilization of the economy and stock market has restored confidence in the Sydney market.

Henry Wilkinson, principal of Sydney-based buyers agent and property consultant Homesearch Solutions, says people should buy now, rather than wait. “We’re advising our clients to buy early this year rather than later,” he said. “We’re just seeing no sign of any change – unless there’s some world economic difficulty that comes from left of field. If fundamentals stay the way they are we’re expecting a very strong year in growth of greater than 10 per cent.”

Wilkinson said the main factor driving the market is relatively low interest rates. “The official cash rate is at 4 per cent – two years ago it was at 7.25 per cent,” he said. “That’s the main driving factor. Even with interest rates potentially going up a bit, they’re still going to be well below where they were two years ago.” He said there was also a shortage of quality stock in the market. “That seems to be a common problem around Sydney,” he said.

Eastern Suburbs strong

Wilkinson said Sydney’s Inner West has been strong. According to REX, median prices in the Inner West suburb of Birchgrove rose 34 per cent to $1.2 million, while Drummoyne was up 50 per cent to $1.13 million. But Wilkinson says the Eastern Suburbs are recording particularly strong price gains. “It’s the strongest of the market we have seen,” he said, adding the East was rebounding strongly after the GFC and is attracting people because of its access to the CBD and lifestyle including cafes, restaurants and beaches. According to REX data, median prices in Bondi Beach rose 42 per cent to $925,000, while the PPI for Bondi and Bondi Beach rose 8.96 per cent to $772,321.

Nathan Mainhoff of Century21 Ascot Homes in Bellevue Hill in Sydney’s East said there has been an upsurge in activity since Christmas, particularly in the sub-$5 million, with lots of activity in the $1 million to $3 million range. “The Eastern Suburbs is the first to go in and the first out in any cycle,” he said. “The market had a major correction last year and the one before courtesy of the GFC. It fell 18 to 20 per cent and is now finding its way back to what it was prior to the GFC in 2007.” He said there’s still scope for improvement – with the market still to get back to the peak it reached in 2005/06.

John McGrath, chief executive of McGrath Estate Agents, in his recently released Autumn 2010 market review said the bounce back in Sydney’s upper prestige end is continuing. “The recovery will likely be complete by mid-year so this is the last chance to upgrade into homes worth $3 million-plus at a discount to 2007 prices,” he said. “In 2010, the middle and upper brackets should increase as the economy strengthens and executive bonuses re-appear. I suspect we will see the $1.5m to $3m range start to increase strongly.” Mainhoff agrees there is still value at the top end. He says high-net-worth individuals are telling him they believe there is still good buying in suburbs such as Bellevue Hill and Point Piper. According to REX, median prices in Bellevue Hill surged 76 per cent to $1.43 million. Media heir Lachlan Murdoch’s $23 million purchase of the former French consulate, Le Manoir, at 93 Victoria Road, Bellevue Hill, helped boost overall prices.

Activity picks up on Lower North Shore

Homesearch Solution’s Wilkinson said the lower to mid North Shore is also strong, and stronger than the upper North Shore. Mary Curran, sales consultant at Ray White Lower North Shore, says she is seeing increasing numbers of inspections, while there is generally a lack of stock. “A lot of the properties are having offers on them prior to auction,” she said. “Properties on the market last year that weren’t sold have now sold. There are also high investor enquiries. The market has been very flat for a while. We don’t think it’s going to boom, but we think it will be a steady increase.”

Curran said there is a return to confidence in the general economy, which is underpinning the market. “The fact the stock markets have stopped falling means that people are now transacting again – they’re moving; they’re thinking about doing things,” she said. “Before they were just too nervous. There’s also confidence in the rental market from a landlord and investor perspective.” She said many were looking to diversify their portfolio out of the share market and into smaller units around the $500,000 mark.

Curran said anywhere close to the water, transport – including train lines and ferries – is particularly in high demand on the Lower North Shore. “The demographic is primarily a lot of single people. Therefore it’s good for rentals of studios and one and two-bedroom units.” According to REX, median prices in Kirribilli surged 53 per cent to $1.35 million, prices in Lane Cove North were up 27 per cent to $621,000 and McMahons Point rose 50 per cent to $935,000.

Price gains sustainable?

The HIA’s Harley Dale says the question is now whether Sydney’s price gains are sustainable. “Will we be talking about this kind of recovery in 2011? I think we’re at the crossroads at the moment,” he said. “There’s enough momentum that 2010 will be a better year than 2009 was. The next two to three to four months of information on housing will give us an idea of whether we will see a sustained recovery. It’s touch and go at the moment.”

But Dale is optimistic that prices can keep rising. “Momentum and confidence are very important to the Sydney market – two things Sydney has been lacking since around 2003/2004,” he said. “There’s more confidence on the ground from the building community than there has been for some time. There certainly seems to be a recovery underway in home values which is very good for household confidence. What I sense from talking to people on the ground is that sentiment’s improved and that’s a vital first ingredient.”