Is it a buyer’s market? Housing comes off the boil
2015: It was the year of the booming housing market (well in some cities / regions). There was plenty of talk about how hot housing markets were, the record auction clearance rates and how, in some areas, homes were selling within a week!
With the dawn of the new year, there’s now plenty of talk about the market going off the boil. Some are calling it a crash, others a correction, while others are saying prices are now coming back to much more realistic levels.
But most agree the boom is over and that savvy buyers are now in a much stronger position, where they can negotiate both prices and terms. Some have even declared 2016 the first buyers’ market in four years. CoreLogic RP Data statistics showed that in November 2015, home values dropped 1.4%, while in December it was 1.2% – the first time since May 2013 that they have fallen for two successive months. Brisbane and Adelaide were the only two capital cities to show a rise in house prices over the December quarter. Homes in Brisbane appreciated 1.3% over the quarter, with annual growth of 4.1%, while homes in Adelaide fell 1.5% during the month, bringing quarterly gains down to 0.6%. Perth ended the year as the country’s worst performer, with homeowners losing an average $19,970 off the value of their homes during the past 12 months, while in Darwin homeowners have seen the value of their homes fall $18,150.
Overall, auction clearance rates also fell from their highs of up to 90% in some areas during autumn, to 62.1% for the December quarter.
Sydney predominantly accounted for the contraction, whereas Adelaide, Brisbane, Canberra and Melbourne all recorded higher clearance rates than a year ago.
Domain Group senior economist Dr Andrew Wilson said in a www.domain.com.au article that confidence in the housing market is still strong, with the underlying fundamentals of NSW some of the strongest around.
“But now we’ve got a legitimate buyers’ market in Sydney,” he said in the article. “There’s a bit more trepidation among sellers, particularly with headlines about prices falling, and with such a soft start to the new year, opportunity is certainly knocking for buyers out there.”
Dr Wilson went on to say that buyers are now often adopting a wait and see approach “and they’ll now have the upper hand in the negotiation process.”
PRDnationwide National Research Manager Dr Diaswati Mardiasmo said cooling markets in Sydney and Melbourne “will be due to a more natural correction as opposed to a crash”.
“The unprecedented growth experienced in 2015 was a result of temporary factors such as low interest rates and increasing levels of foreign investment,” Dr Mardiasmo said.
According to PRDNationwide, there are a number of factors that will impact the market in 2016 including:
– The Aussie dollar: It’s still low, which makes our property more inviting to foreign investors.
– The increasing amount of infrastructure projects, which will see even more connectivity between regional and CBD areas – hence more options in places that people haven’t thought of.
What to look for
Dr Mardiasmo points to infrastructure and upcoming developments as an indicator of an economy’s strength/potential.
“High levels of projects indicate more active economic activity, which is good for the market – more commerce, more infrastructure, etc.” Dr Mardiasmo said.
Based on PRDNationwide’s upcoming development FY2016 table (see below), Sydney is way out in front, with slated residential development worth $23.7 billion and $2.3b of infrastructure. Melbourne also has significant upcoming residential development ($10.3b), and infrastructure valued at $1.7b. Third on the list is Brisbane, where upcoming residential development is valued at $4.9b, although infrastructure is second lowest ($388m). Perth has $2.6b of residential development, Adelaide $1.9b and Hobart $42m.
When it comes to the best time to buy, Dr Mardiasmo refers to PRD’s Property Growth % table and Time to Buy graph (see below).
“These graphs are a good indication for what’s about to happen in 2016 as they indicate people’s buying patterns and their confidence in the markets. A decline in percentage growth between 1st half and 2nd half 2015; combined with decreasing time to buy signals that there will likely be a correction for 2016,” Dr Mardiasmo said.
“[The table and graph] indicate there has been a slowing down in Sydney and Melbourne, which will likely continue in to 2016. Darwin will also continue to decline due to the mining industry slowing. Brisbane has been performing steadily and will become more of an option for people. Perth Hobart Adelaide are waking up and will likely see growth in 2016.”
Sydney: What really lies ahead?
Bucking the prediction trend of many of its peers, real estate consultancy Knight Frank has forecast that capital growth in Sydney will forge ahead in 2016.
Knight Frank’s Prime Cities Forecast Report showed that in 2015, Sydney outperformed 10 major cities in capital growth and it is expected to continue that trend in 2016.
Housing prices across 10 top cities in the world, including London and New York, are expected to grow an average of 1.7% in 2016, while Sydney will forge ahead with a 10% growth forecast. Knight Frank’s prediction is one of the highest among property experts.
Sydney topped Knight Frank’s list of 10 global cities in capital growth at an average 15%, but a slowing economy, weaker share market performance in recent months and the introduction of foreign investment fees prompted the Knight Frank report’s analysts to project the more modest 10% growth for 2016.