As we approach the end of what has been the strongest year in history for Australian real estate values, the industry sentiment is that we may be at or nearing the peak of this current growth cycle and property owners seem to agree. Stock levels have gone up with plenty of vendors deciding to hit the market and take advantage now rather than wait a little too long. Low stock has been a key driver in the covid boom so it will be interesting to see how the market reacts and whether properties will continue to list at the same rates in the new year.
Auction clearance rates as expected have softened in light of the latest surge in listings. With vendor expectations now in line with all time high prices, the recent flood of stock to hit the market has caught a few owners by surprise with Sydney recording 67% over the weekend, after a steady drop during October/ November having spent most of the year in the 80% range.
Data shows that a clearance rate holding over 70% is historically typical of a rising market whilst under 60% is telling us the market is in decline. A moving clearance rate can be harder to read as it is often a by-product of changing stock-levels or vendor reserves. Considering the 15% rise in listings we can’t say for sure yet that the lower clearance rate can be attributed to lower confidence.
During the month of November Sydney still recorded a 0.9% gain however this was the lowest monthly gain of 2021 which echoes sentiment across the board that we have past the strongest growth period. Sydney should finish the year just on 30% capital value increase. All the big banks are forecasting between 5-10% growth for 2022, with a possible correction in 2023 under the weight of higher interest rates. In my view the key factor will be migration which still remains unknown amidst new strains of Covid. With 2 years of pend up migration demand we may see a strong demand for housing which could push up rental values and stimulate investors which have been largely absent from the Sydney market. Rental values remain stable in Sydney however this has not been the case across large regional centres from the west coast to the east coast, as thousands of people relocate out of the capitals seeking a lifestyle change brought on by the pandemic creating a surge in rental values.
The most promising market for investors should be the low-end apartment market which has not yet seen substantial gains, due to oversupply and poor yields. Apartment supply is still high, however this is now being absorbed at a healthy rate conducive to growth. Once this reality kicks-in the first-home buyer and investor market may begin to move with the urgency we saw back in 2015-2016 subject to financial regulators. Duplex sites will also continue to perform in my view as resale values in 2021 have bolstered the gross realization two-fold. Once the apartment values rise this may assist in holding up the mid-range market as cashed up apartment sellers look to up-size. The upper-end market will not have enough fuel to maintain itself as soon as rates rise and the mid-range housing market stops growing and I predict this will be the first market to correct perhaps as early as next year.
Billy Couldwell 0416 713 721
