Property prices across the country are continuing to rise thanks to a combination of low interest rates and low supply, and in the process creating a tricky environment for buyers.
According to the latest data from CoreLogic, house prices rose nationally by 2.1% in February, marking the biggest one-month gain since 2003. Notably, both Sydney and Melbourne saw strong gains, with median dwelling values rising 2.5% and 2.1% respectively.
The price increases have been steadily gaining speed over the past few months and for the quarter house prices are 4.0% higher on a national level. It appears that after a slow 2020, house prices in Australia’s largest two cities have started to play catch up and are now making up for lost ground.
Since COVID hit Australia in 2020, we’ve seen a huge change in sentiment and the fortunes of investors and homeowners. Transaction volumes fell away abruptly around April 2020, before slowly recovering as lockdowns began to ease. Melbourne was the hardest hit throughout 2020 and their lagging house prices and transaction numbers are only now recovering.
Big Banks are Bullish
Notably, the tone of Australia’s major banks has also taken an abrupt change as well.
Early in 2020, the big banks were calling for house price falls in the vicinity of 30%, a correction that we have never really seen before. Now that this has clearly not eventuated, all four big banks are starting to call for double-digit growth for the remainder of 2021 and into 2022.
CBA expects house prices in our major capital cities to rise by 8% in 2021 and then by 14% by December 2022.
NAB’s price forecasts are also very bullish and are almost in line with that of CBA. NAB is expecting to see house prices rise on average by 7.9% in 2021 and then 6% in 2022.
ANZ expects to see property prices to grow by nearly 8%, with Sydney and Melbourne both performing strongly.
Low Stock Levels
While Australia is still in the midst of a sharp but uneven economic recovery and even with interest rates at record low levels, one of the major reasons for the upward pressure has been a lack of available stock.
With the uncertainty that hit the world in 2020, many homeowners simply chose to sit on their hands and not sell. This led to a huge shortage of listings and this has been one of the contributing reasons we are seeing strong growth in prices.
Total Listings in 2021, sit at around 140,000 compared to 180,000 this time last year. In the last five years, we’ve seen periods where total listings have been as high as 240,000 across the country, reflecting just how tight stock levels are in the current market. According to CoreLogic, there is evidence to suggest that listings could be about to rise given how active real estate agents have been in recent months. However, for the moment Australia is still in the grips of a stock shortage.
Buying Property in a Sellers Market
It’s very clear that in many areas of Australia we are in a seller’s market, with scenes reminiscent of the last boom in Sydney and Melbourne in particular.
With low stocks levels, properties that are on the market are met with strong competition and multiple bidders at auction.
With market conditions that are favouring vendors, buyers need to quickly adjust their approach and expectations or risk missing out. One of the best ways to deal with this rapid change in the market is to be prepared to put in a competitive offer early in the piece.
In recent times, it was generally possible to offer slightly below what a vendor might be looking for in a private treaty sale scenario and that would have been enough to get a deal over the line. In the current environment, you’re likely to be overrun quickly by buyers who are prepared to pay more.
With that in mind, if you are facing an auction sale situation, you should be looking to bid strongly and be prepared to potentially put in an offer above what the vendor is looking for to secure the property before it goes to auction. If the property is highly desirable, it’s likely to attract multiple offers which in effect will drive up the price anyhow.
By bidding strongly early on, you have the ability to perhaps get your offer accepted and knock out the competition in the process. Of course, you should be looking to pay a fair market price, but be prepared to act assertively early on.
We are seeing many clients also looking for the opportunity to buy properties off-market, or before they are officially listed on real estate portals. This also gives you an opportunity to secure an in-demand property without facing a lot of potential competition in a public auction setting. Due to all the market factors already discussed, there will undoubtedly still be natural competition as well as vendors agents advising them to go through to auction, so don’t expect a smooth process, but perhaps a desired outcome.
Buying property off-market has been on the rise over the last 12 months and it has also been a contributing factor to the lack of listings that most people are seeing when they start looking for a property to purchase online.
Some buyers have been fortunate to secure high-quality properties as Off the Plan purchases which has meant that they have only needed to contribute ten per cent as a capital deposit, and can have a more passive journey whilst their properties are being constructed, although we have also now witnessed that many of these are being sold prior to actual market release.
I think it is especially important for people who are looking to buy their future home to be cognizant of how much they can borrow and then look to act decisively. We have seen numerous instances where increasing market prices have caused a lack of further borrowing capacity make potential buyers have to settle for lesser quality properties due to time delays.
With low-interest rates expected to potentially remain in place for a number of years, there is likely to be strong demand for property in the foreseeable future and it is important to factor that in when making your buying decisions and determining the best strategy for your purpose.