As the end of 2011 neared the year looked set to finish with a burst of activity in the property market. Two interest rate cuts had set the stage, together with the deadline approaching for the stamp duty concession for first-home buyers for the purchase of established homes.
Dr Andrew Wilson, senior economist for Australian Property Monitors said in the Sydney Morning Herald on 14 November that: “Sydney home buyers appear to be out and about and, with the Bureau of Statistics reporting last week that the state's monthly unemployment fell from 5.4% in September to 5.1% in October, expect confidence in the housing market to continue to improve.”
Confidence however can be a fragile thing. As reported just one month later on 14 December in a News.com article, consumer confidence has dropped to its lowest level since August as Australians focus on rising unemployment, troubles in Europe and a shaky share market rather than two consecutive rate cuts.
Rate Cuts Alone Not Enough
In the article, Westpac chief economist Bill Evans said the result was surprising, and notable. He told News.com that: “...the history of previous easing cycles shows that rate cuts do not guarantee an improvement in sentiment.
"The likely explanation is that respondents' concerns over the reasons behind the rate cut may overwhelm the perceived benefits of the cut itself.”
An IBISWorld report in December said that: “About 36% of Australians intend to spend less this Christmas than they did last year and fewer than 20% are planning to spend more.”
Even the seemingly-bulletproof Sydney real estate market is quieter than expected. Dr Andrew Wilson who was so buoyant in mid-November told the Sydney Morning Herald on 10 December: “Buyer confidence remains fragile and auction clearance rates have fluctuated near the low-50% mark despite relatively large numbers of properties being offered recently by sellers seeking to clear the deals before Christmas”.
So, it may well be that a fall in consumer confidence has combined with the end of a period of stimulated demand to give the market a quieter ending to 2011 than anticipated.
Plenty of Expert Optimism
Writing in the Property Observer, Christopher Joye, joint managing director of Rismark International, is optimistic.
“With the ability to now get three-year fixed-rate home loans for 5.99%,” he said, “and 6.39% variable-rate loans, there is understandably excitement brewing about the prospect of a recovery in the Australian housing market.
Joye says that if the financial markets are right, and the RBA continues to cut rates in the first half of next year, a very healthy rebound can be expected: “While I expect housing activity to revitalise by the first quarter of 2012, this will not flow through to the price data until the end of March or April.”
Real estate author Terry Ryder wrote in The Australian on 26 November: “The latest home-finance index confirms that property consumers collectively have everything in their favour but are disinclined to take action. They await some magical signal that it's OK to buy something.”
In the meantime, over the past year Sydney rents increased by 5.9% for houses and 5.4% for units bringing the weekly rent for a typical Sydney house up to $550 and to $513 for units.
Tim Lawless, RPData’s national research director, says that returns on Sydney investment property are now well above the combined capital city average. “The typical Sydney house is returning 4.4% gross, while units are returning a gross yield of 5.2%.”
Another long-time monitor of the Sydney property market, Residex CEO John Edwards, has predicted that the city’s house prices will rise 3% per annum over the next five years and 5% per annum over eight years.
Buyer Confidence is the Key
Dr Andrew Wilson says that, for the short-term at least, buyer confidence will be the key to when Sydney’s property recovery will begin in earnest.
“Latest Australian Property Monitors data shows that the Sydney median house price fell by just 1.6 per cent over the year to September. More encouragingly median unit prices have actually risen by 0.6 per cent over the year to September.”
This is one of those times that investors and other would-be property owners look around and see that interest rates are low, prices are generally negotiable, the housing stock on offer is good in both quality and variety, and rental rates are rising.
Too many positive factors are now in place for the buyers’ hesitation to last much longer. With an expectation of further interest rate cuts in the New Year, Terry Ryder’s magical signal that it’s OK to buy something has to be on its way.
Sources:
- Wilson, Andrew - ‘Spring surge blooms as home buyers dive in,’ Domain.com, 14 November 2011
- Koremans, Sonja - ‘Consumer confidence down despite rate cut, Westpac survey reveals,’ News.com.au, 14 December 2011
- IBISWorld Special Report - ‘Savvy spending: Shoppers will be choosier this Christmas,’ December 2011
- Campion, Vikki - 'Worst nearly over for Sydney property prices,’ The Daily Telegraph, 1 December 2011
- Wilson, Andrew - ‘Rate cut could be lifeline to slow market,’ Domain.com, 10 December 2011
- Joye, Christopher - ‘Breathing life into Aussie property,’ Property Observer, 24 November 2011
- Ryder, Terry - ‘It's a race to the bottom when picking property prices, but you'd better hurry,’ HOTSPOTTING, The Australian, 26 November 2011
- Wilson, Andrew - ‘2011: Orderly correction no dramatic fall in house prices,’ Domain.com, 27 November 2011
Philip Keeffe - Phil Keeffe is an Australian journalist originally from California who has lived in Sydney since 1968. His communications background ...
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