Monthly Market Wrap – August 2022

September 1, 2022

Market adjustments open up new opportunities

Property is a most interesting asset class as it’s tracked, dissected and reported on in the public eye well beyond any other investment. We consistently read daily headlines about affordability levels, stamp duty adjustments, interest rates, auction clearance rates, bank price forecasting, Sydney’s best and worst performing suburbs and all the financial commentary about how property should be managed. As a result many people feel they are the expert when it comes to making the right moves with property – when to buy, hold or sell, how to manage estate agents, how to bid at auction and what are the key ingredients that make the best investment. As the market continues to experience the fastest downturn recorded in more than 40 years, the number of so-called experts has increased, coinciding with an elevated number of media articles covering the changing market dynamics. The optimists in the market – and it will come as no surprise that most of them are those looking to sell – are leaning into any article that offers the most minor green shoots of hope that the market will rebound in spring.

We’ll often hear things like ‘rates are coming down next year and then the market will be off to the races again’ or ‘we’re sensing confidence is building coming into spring and our property is in an area where prices never go backwards, they just level out’. At the opposite end of this rhetoric are the pessimists – and again no surprises but this is the vast majority of buyers currently moving through the market. What we’re hearing from this group is that ‘prices are going to fall further and we’re just waiting’, ‘more property is coming up and sellers will need to adjust their expectations’ and ‘there is minimal buyer demand’. In our experience, both sides have valid points. No-one can predict the future and what we’re arm-wrestling with today mostly regards factors that are well beyond our control. The reality is that rapidly rising interest rates are having a significant impact on the borrowing power of about 90% of the buyer pool. What many people aren’t seeing is that our typical buyer has just had 25% of their borrowing power stripped away in five months, which does and is impacting how people transact. CoreLogic data at the end of August noted that Sydney property prices have declined by 7.1% so far in this downturn. However, if you ask any agent what’s really happening the message will be consistent – if the property is anything other than the area’s best of the best then prices are down 10%-15% and moving to 20% for the super challenging homes in any area. As we close August, SQM Research has the auction clearance rate at 39.7% for Sydney and this has not lifted above 42% since May. Such a clearance rate reflects downward pressure on prices and financial institutions believe the cash rate will be at 3.1% by December, which remains a significant lift from the current level of 1.85%.

Our advice for everyone moving through the market is to find a balanced perspective. Prices are falling for most properties but it’s simply a cycle. Every seller needs to be prepared to hear weaker feedback going into their campaign. It’s quite simple to understand why, just read any media headline and place yourselves in the shoes of a buyer and ponder ‘how would you react to what you’re reading if you were looking to make a life changing purchase?’. That said, buyers also need to lift their enthusiasm as we’re just shifting through a cycle that may only last another 12 months. When you find a property that matches your requirements, make a sensible offer, you’re going to be fine. We’ve been operating in this area for 30 years and we can still count on one hand the number of people who made a bad property choice in the areas we service.

Bring on spring!

Matthew Hayson