The half way mark property review

As we close off the first half of the year, another eventful run of economic and property news has unfolded. Could we expect anything less as the world continues to tilt into an unreliable hot mess of economic weirdness where old-school economic fundamentals seem to have no place? Let’s look behind the curtain to start with cost of living, which is well entrenched in the local narrative. We’re all bearing witness to this from buying groceries, clothes, eating out, fuel, holidays, rent and building costs. Everything is up and the predecessor to the current RBA Governor, Phillip Lowe’s comments continue to haunt the public when he said “Inflation will be transitionary in Australia and we’re not like other developed nations”. Fast forward to today and words like inflation being ‘sticky’ are thrown around but of all the OECD nations, Australia is now the only country where inflation continues to rise. It is not transitionary – inflation is embedded, and the finger-pointing has already begun. The RBA has been throwing warning shots at the Government for loose budget spending at both State and Federal levels while the Government seems hell-bent on blaming landlords for rising rents while introducing a tax by stealth whereby they froze the tax-free land value threshold.

As we move into August and the second half of the year, it looks highly likely that we could be punished with not just one interest rate increase but multiple increases that will be very tough to stomach for much of society. Well-respected economist Christopher Joye has been vocally critical of the RBA’s management of the inflationary issues unfolding across the globe, but in particular Australia. Following mean inflation rising for the third month in a row to 4.4% from 4.1%, Mr Joye commented that “The RBA has made a major policy blunder by not following peer central banks and even its own data by not listing rates higher and faster to crush inflation”. This sentiment was also supported by Judo Bank’s Warren Hogan who noted “It’s not the news anyone wants to hear but rates will need to go higher”. So here we sit at a precipice point for our economy and the Australian housing market, which seems to be beholden to a system of people who have got little right over the past five years.

On the property market “wow” is all we can say. You’d read the above, which is the commercial reality for the vast majority of Australians, and draw a conclusion that property assets would be under some downward pressure. This has not occurred through the first half of this year, and in fact, property prices are rising. Sydney property prices have increased by just under 5% so far this year according to CoreLogic data and they continue to edge forward modestly each month. It’s a strange conundrum given that the cost of borrowing and living are at peak levels yet the low supply of available property, high net immigration and the obsession of property in Australia has overridden the aforementioned issues. While prices are rising, the market is quite evenly balanced between buyers and sellers – it’s a moderate market. It’s a time when sellers need to remain fluid with their price expectations as it’s evident that the active buyer pool is probably half of what we experienced in the hot market period of 2021. We can see this environment playing out across the wider Sydney auction market with the clearance rate firmly pegged between 50-55% for the entire year as reported by SQM Research.

The cream rises to the top in such markets and we’ve been witness to exceptional sales results for the most sought-after listings in our area. It’s these hot auctions that continue to keep buyers on edge and sellers hopeful that they too could have the same selling experience. That said, the sale process for 80% of sellers is a delicately navigated path to find one or two key engaged buyers and massage an agreeable price that works for everyone. Our top 10% of listings are continuing to fly and set new price benchmarks while the bottom 10% of properties are experiencing downward pressure. Overall, the property sector is and always will be resilient but with pending interest rates increases, anyone involved in property is on notice that the market dynamics could shift quickly. We’re already seeing a near 30% increase in new listings this winter compared to last year, which for us suggests that many are cashing in, reducing debt and working their way through this current economic cycle.

We’re expecting a dynamic period over the coming months, and nothing could be more important than market knowledge and experience when it comes to buying, selling and leasing. These are the market conditions in which our team really does rise to the occasion and we’re always available for a confidential conversation to provide our straight-talking recommendations.