Has winter put a freeze on the Australian property market? We ask property expert John McGrath for his opinion.
We saw strong price growth in the first quarter of 2010 in most major cities and I predict this will continue through the Winter season.
There’s been some speculation that the property market will be impacted by rising interest rates, and while it’s likely that price growth may slow by Christmas, we won’t see any correction in values.
Supply will remain low for several years so I believe we’ll see ongoing annual price growth of around 6%-8% once this surge in prices subsides. We’re at the beginning of a 3-5 year growth cycle, and I believe buyers will look back and wish they had bought in 2010.
Market Observations
Here are a few of my key observations and views on the current market.
- Clearance rates have been consistently high, around 70% nationally – as strong as I’ve seen them in many years. New listings are selling quickly as demand continues to markedly outstrip supply in most major cities with the sub $2M price range particularly buoyant.
- Traditionally, Winter provides buyers a new opportunity as demand can temporarily subside and days on market can lengthen. I expect Spring 2010 will see a significant increase in economic and buyer confidence as the US recovery continues and Australia’s best properties hit the market in our traditional peak season.
- While most analysts are saying buyer demand will drop off with each rate rise, many buyers in today’s market have been actively looking for many months and don’t want to miss out. Buyers remain confident that price growth will continue to rise over the next 12 months. I believe demand will remain extremely strong while home loans remain under 8%. However, buyers shouldn’t get carried away and over-commit.
- Upgrader buyers are dominant in our major markets although new AFG* figures show almost 40% of loans drawn in April were to investors – the highest number AFG Mortgage Index has ever recorded. Broadly speaking, the $500,000 to $1.5M market is the strongest bracket and it’s interesting to see investors at the upper end of this bracket instead of the traditional sub-$500,000.
*Australia’s largest mortgage aggregator.
- There is still an opportunity for first home buyers (FHBs) to enter the market despite the recent rate rises. However they should factor in the possibility of further rises, even though I think they’re close to their peak. There’s still great buying available, but I’d advise FHBs to do more research, be prudent and shop around for mortgages as well as properties to get the best package.
- The prestige market remains somewhat untested with most activity under $3M right now. We’ve seen a few outstanding sales above $5M, but supply and activity is generally low. Increasing executive bonuses will create more demand and accompanying price growth will follow. For those buyers that have been holding off, I see the next 3-4 months will present some great value opportunities.
- Rents are strong due to low supply and less buying activity among first home buyers. Rents are up 30% over the past few years in all major cities. There is a several-year lag between development approval and availability for sale, so this will keep new supply low and demand high for some time to come.
- Canberra is booming with demand outstripping supply even in the apartment market, where we’ve seen a significant increase in stock. This can sometimes soften prices but not so in Canberra – for the first time in history, apartment sales now outnumber houses and prices are very strong.
John McGrath’s Top Metro Suburb Picks – Best Buying for Future Growth
Houses
- Bronte
- Pyrmont
- Neutral Bay
- Hunters Hill
- Mosman
- Balmain East
- Avalon
- Northbridge
- North Parramatta
- St Ives
Apartments
- Darling Point
- McMahons Point
- Lane Cove West
- Tamarama
- Ramsgate
- Northbridge
- Balmain
- Chippendale
- Rozelle
- Kirribilli
Regional Markets
As we expand into other lifestyle markets on the eastern seaboard, we are getting access to more trends and insights into new markets. Here is what we are seeing.
- Enquiry from metro-based empty-nesters remains strong. Local and Sydney-based investors are gradually returning to the sub -$500,000 bracket in coastal regional areas.
- The market for houses and apartments under $500,000 is still very strong. Unlike other parts of the country, first home buyers are still very active due to great local affordability in such areas at the Central Coast and Wollongong.
- Many of active buyers are Sydney executives looking for a lifestyle change that allows them to work from home part-time with a quick commute to their Sydney offices.
- The Southern Highlands, Central Coast and Blue Mountains have experienced an oversupply of premium properties during the GFC as many holiday homeowners liquidated their assets, so these markets are presenting some great buying opportunities.
- The luxury upper end of the Ballina/Byron market was significantly affected by the GFC, with some excellent buying opportunities above $1M. It’s rare for such a blue-ribbon area to experience this kind of price fall, however I suspect the recovery will be fast and furious.
John McGrath’s Top Regional Picks – Best Buying Opportunities
- Ettalong Beach
- Thirroul
- Burradoo
- Byron Bay
- East Ballina
- Kingscliff
- Avoca Beach
- Belmont
- Nelson Bay
- Tweed Heads
Key Points & Predictions
- Continuing strong price growth in major metro markets in Winter and Spring.
- No correction coming, but slower pace of price growth inevitable in 2011.
- Main market strength is in inner city metro locations, many regional areas yet to fully recover.
- The seasonal influence of Winter provides a new opportunity in metro areas with demand subsiding.
- Upgraders are dominant but the proportion of investors in metro markets has increased substantially.
- Buying opportunities still available for first home buyers but they must do their research.
- Prestige market above $5M remains largely untested.
