The Experts

Charles Tarbey
Expert
+ About Charles Tarbey
Charles Tarbey is the owner of Century 21 Australia (www.century21.com.au) and Century 21 New Zealand (www.century21.co.nz).

Not not, not responsible

Tuesday, August 27, 2019

A good starting point during this analysis is to determine the accuracy of the most recent positive media stories around the property industry. We saw months of vastly exaggerated horror stories within the media by the so called ‘property experts’, who have now, very conveniently, not answered for such inaccurate readings. This in turn caused many potential purchases to hold back when they had a great opportunity to get their foot in the door. The marketplace itself cannot lie, so consumers need to pay attention to their local areas and the agents within, as they will provide the best first-hand advice.

The biggest issue we still face is very much the responsible lending criteria, which isn’t allowing those who are ready to purchase to get their foot in the door. This is due to the overly strict requirements that block a customer from borrowing based at the current interest rate and are instead qualified based on an interest rate that’s 2-3% higher. This is seeing an individual qualify for a higher loan amount based off their income but being lent an amount based off a higher rate, limiting their borrowing power due to poor risk assessment and de-personalisation of the process. In essence, the best interest of the customer is non-existent.

Just a few weeks ago, we saw numerous reports on how this lending criteria will include extra policies from major banks, inclusive of Westpac and NAB deemed by consumers to be very conservative. I couldn’t agree more. Some of these tightened polices include more detailed evaluation of expenses spanning anywhere from 6-18 months prior to enquiry, changes to the definition of a financial dependant, stricter debt-to-income ratio applied to all applications and an increase in expense categories from 6 -13. These stricter policies are said to be implemented to ‘better understand a consumer’s financial situation’ when in reality an adequate risk assessment is extremely circumstantial and all factors inclusive of environmental judgment, care and customer history should be taken into consideration.

I discuss these matters with my own staff regularly. Many of them are currently renting in their homes with their families and unsurprisingly most are spending the same amount on their rent as what they would be on mortgage repayments for a home of similar value. This cycle has created an industry of buyers ready to step into a now stable and accessible market road blocked by stringent lending criteria.

 

Is the property market turning around?

Wednesday, June 26, 2019

The market is starting to show signs of stability albeit still far from a full recovery, and the recent interest rate cut will add to the positive sentiment. The significant turnaround in buyer confidence is evidenced in the latest national auction clearance rate of 63.7%, which is up from 55.5% during the same period last year. The time may be right for potential buyers to cautiously make their way back to the property market.

In fact, interest in purchasing property is likely to be stronger now than at any other time over the previous 12 months, as we see a slowdown in the decline of national dwelling prices. The 0.4% drop over May is the lowest month on month drop since early 2018, and as home values start to plateau, we should expect a return of buyer confidence. It would not be surprising for home values to start to increase towards the end of this year.

There are still some regions experiencing declines in property values greater than the national average, however, the impact of the drop in interest rates coupled with more positive media could see values in these areas begin to level out. Potential buyers who have been reluctant to buy over the past year may now be re-assessing both the market and their own financial position in order to make a decision, as now may not be a time to linger but to act.

It is clear that the market will not get close to the extreme lows in property values predicted by the so called ‘property experts’. There is also little doubt that potential buyers held back on purchasing their home or investment due to an expectation of values dropping by the predicted 40% to 50%. This and the long period of negative media towards the property industry contributed to reduced buyer demand and the resultant drop in property values.

The industry may want to consider collating the predictions of property experts to make them accountable or expose those with alternate reasons for their wild predictions to ensure nobody benefits from the hysteria this creates.

 

Fortune tellers wrong again

Wednesday, May 29, 2019

Sydney has set the trend in house prices for decades for the rest of country and with auction clearance rates now higher than they were this time last year, this clearly indicates a shift in consumer confidence and stabilisation of the market.

We have seen the decline in national dwelling values slowing down and expect this to continue over the coming months which begs the question: What were these ‘fortune tellers’ talking about?

The recent election result saw The Liberal Party led by Scott Morrison take centre stage and already bring optimism and a positive impact to the property industry. Removal of the threat of changes to negative gearing and capital gains tax are primary drivers. Changes such as those touted by Labor were major and anyone in the property market knew that if Labor had won, we would all wake up the next morning knowing that we would have to change the way we do things. For now, nothing will change and this has definitely created a positive outcome, if the 69.9% clearance rate over this past weekend in Sydney is anything to go by. This time last year the clearance rates were 56.1%!

This result coupled with the huge spike in open for inspection attendance across the country – possibly because of the belief that it might be time for a bargain – may even see the dwelling prices start to stabilise or even increase towards the end of this year. This will be boosted further should the speculated interest rate reduction occur.

Above all, barring a market crash in the US or China, it clearly indicates that the so-called ‘property experts’ predicting a 50% crash have got a lot to answer for when it comes to prior advice given to assist or resist consumers venturing into the world of property.

 

Negative gearing is not the biggest issue our property market faces

Tuesday, April 23, 2019

A fallout from the Banking Royal Commission saw banks apply stricter lending requirements that made it difficult for consumers to obtain finance, particularly for investors. Whilst I have the greatest of respect for our banks, their actions mean that equity is no longer king.

The criteria for consumers to obtain approval for a loan has become very stringent in the current environment. This is causing most of today’s problems and is disrupting our industry far more than the upcoming federal election. Until we see some flexibility return to the banks’ lending criteria, the housing market will continue to remain flat, regardless of the outcome in the upcoming election. Understanding and awareness of this issue must be given more prominence within the industry.

The so called ‘property experts’ have not helped our industry over the last 12 months with numerous and widely publicised predictions of an impending market crash in the vicinity of 30% to 50%. Whilst such headlines may have brought some buyers into the market (first home buyers in particular), the reality is that these enormous drops simply didn’t eventuate.

The recent CoreLogic-Moody’s Analytics Australia Home Value Index Forecast sees house prices falling in Sydney and Melbourne by 9.3% and 11.4% respectively during 2019. These figures reflect the most accurate representation of the current market and are in striking contrast to those thrown around by property pundits who do little but disrupt consumer knowledge and confidence.

House prices escalated well beyond where they should have in the last growth phase due to the prolonged low interest rate environment and availability of credit which spurred on the market. I have always held the view that prices will fall and then stabilise at a similar level to where they were about 2 years ago.

Expert predictions fail to mention that despite property prices falling over the last 12 months (and are forecast to do so again in 2019 across most states), the decline in value is nowhere near the gains achieved over the preceding 5 years. This should be a fact that should be publicised rather than focusing on the inaccurate property price predictions that are driving negative sentiment.

 

Tips for buyers and sellers in 2019

Thursday, February 14, 2019

The Australian property market ended the year with a mixed bag of results that point to the diverse and complex nature of the current market. Corelogic results show that half of Australia’s capital cities recorded a decline in dwelling values over 2018, led by Sydney (-8.9%) and Melbourne (-7.0%). Perth (-4.7%) and Darwin (-1.5%) also recorded lower values, while all other capital cities recorded an increase in values for the calendar year.

Regardless of the diverse results, it would seem that the deteriorating conditions in Australia’s largest housing markets of Sydney and Melbourne, and a tighter lending environment, are having an effect on the rest of the nation, with most regions recording weaker conditions relative to the 2017 calendar year.

While I don’t expect a housing market collapse in 2019, conditions may continue to weaken which may mean both buyers and sellers are looking for useful ways to get an edge in 2019. 

4 tips for buyers

1.     Be conscious that this current lull in the market may not last long and if they don’t act at some point, they could find themselves in the same position they were prior to the recent downturn. If they are buying for the long term, looking to save a few more thousand dollars by trying to time the market may not be the most prudent strategy and comes with added risks.

2.     Tighter lender conditions are currently catching many buyers out. Instead of securing finance before starting the buying process, many buyers are doing it the other way around.  By securing finance at the start of the process, buyers put themselves in a position to act quickly and this can lead to a more favourable outcome with agents and sellers. 

3.     First home buyers have found it very difficult in recent years to access the market. There are now favourable market conditions for this group and many great opportunities. The generous incentives for first home buyers remain on offer in many markets but no one really knows how long they will be there for. Also, when credit conditions start to improve, first home buyers may once again be faced with stiff competition for properties. These factors in combination lead me to believe that first home buyers would be wise to act decisively in 2019 while ensuring that they do not over extend themselves.

4.     Investors also have an array of opportunities currently available in the market. Some of these opportunities are in areas that they likely couldn’t have afforded in recent times.  While conditions are currently favourable to investors, they should look to pay close attention to planned housing coming on line in their preferred markets. Many areas will experience an influx of new supply over the coming year and I anticipate that rental returns will fall in many of these markets, so investors would be wise to have contingency plans in place. This scenario means that investors should look to protect their income producing assets by trying to secure good tenants. I have always believed that the risk of losing a good tenant over a $5 to $10 rent per week is not worth it. Landlords with good tenants should perhaps be looking to reward this group with things like free gardening or minor property improvements.  

2 tips for sellers

1.     Sellers need to closely watch conditions in their local market and adjust their sales strategy and pricing expectations accordingly. In many markets, gone are the days where you can list a property and know it will be snapped up immediately. Your property has to be attractively priced and your sales strategy needs to be focused on garnering the largest amount of interest possible. This dynamic means that it is critical to meet with your agent regularly while constantly looking to refine your listing strategy to help ensure your property stands out in what could be a crowded market. 

2.     Many people look to appoint an agent that offers the lowest commission rate but I believe this tactic can be fraught with danger. I have always believed that if an agent can’t negotiate a decent commission rate with a vendor, he or she may not be best placed to negotiate the sale of a dwelling. Agent selection is going to be incredibly important for sellers in 2019 and I encourage people in this group to diligently vet agents and look for indicators of performance in a local market, not activity. 

While market conditions are deteriorating and I suspect will continue to do so to at least to the end of the first half of 2019, property is still selling and buyers and sellers can achieve a positive result if they approach the process in strategic and diligent way.

 

Don’t let tomato plants grow on your ‘For Sale’ sign

Thursday, December 13, 2018

CoreLogic recently reported that its home value index recorded its weakest month-on-month change in dwelling values since the Global Financial Crisis. The downward pressure on prices is being led by Sydney and Melbourne where the majority of Australia’s housing assets reside. 

The amount of housing stock currently on the market, for this time of year, is the highest it has been for many years and this is likely very good news for people in a position to buy. Buyers may have more stock to choose from than in past years and may also be competing against fewer other buyers.

This scenario should equate to more negotiating power for buyers and perhaps better deals than they could have secured in the recent past. 

This isn’t such good news for sellers but it is worth pointing out that sellers that buy in the same market will likely be relatively unaffected by the current market dynamics. 

I made the observation in the boom years that real estate seasonality seemed to have become non-existent. One season flowed into the other with demand remaining strong throughout and stock levels not meeting demand in many markets.

Again, there appears to be little seasonality in real estate but with the opposite conditions in effect. Sales are not keeping up with rising stock levels and this is putting downward pressure on prices. This situation could become even more pronounced, with much off the plan stock expected to come into markets over the coming year.

While this is again good news for buyers, sellers looking to secure a successful sale need to be mindful of current market conditions, look to work closely with their agent of choice and take a proactive approach to selling.

With days on market extending in many locations, sellers would be wise to meet with their agent on a regular basis to discuss the progress of their sale. Agents should also be making time to meet regularly with their vendors. 

Sellers also need to constantly assess their marketing strategy and pay close attention to market changes.  If sellers have approved an agent’s marketing strategy and it doesn’t seem to be attracting the desired level of interest, they should consider withdrawing the sale or revising their price expectations.  

If tomato plants have started growing up a ‘For Sale’ sign – a property has been on the market way too long and it’s time for a new agent.   

Agent selection is critical in the current market and vendors should pay close attention to the number of ‘Sold’ signs they see from a particular agent in a given market – not the number of ‘For Sale’ signs. ‘Sold’ signs often suggest performance while ‘For Sale’ signs point to activity.

It remains very possible in the current market for buyers to make a great purchase and for vendors to achieve a successful sale. 

Taking time to understand the market, regularly meeting with your agent and having realistic price expectations – whether you are a buyer or seller – will help you achieve the outcome you want. 

 

How to buy in this property market

Friday, November 23, 2018

National dwelling values continued to decline throughout October.

The result is further proof of the property price correction the Australian market is currently experiencing. While these national results come as no surprise, we are still seeing markets within markets in Australia, with some capitals seeing an increase in prices in the past 12 months.

Despite price increases in Adelaide, Canberra and Hobart on a yearly basis – and prices still increasing in many individual suburbs – the popular opinion is that prices are crashing. This opinion can likely be attributed to the notable disparity between today’s auction clearance rates and clearance rates from this time last year; however, I have a different view. While clearance rates are lower, nearly one out of every two properties on the market is still selling.

I believe that if interest rates and unemployment were to increase substantially in the coming months, there would be an opportunity for the sort of market crash that some are predicting but this seems unlikely.

At this point, there is no clear indication of how long this price correction will last. The Australian market may experience a significant period of stagnant growth with sales being led by negotiation between buyers, sellers and agents. 

For those looking to buy or invest in the coming months, I would recommend that you first and foremost look to secure finance. The Banking Royal Commission (and other factors) has made it challenging for many to secure finance, and after all, you need finance to be able to be in a position to secure property and compete against other buyers. Start this process early and have a clear budget in mind that you stick to.

Investors should be cautious not to buy properties for rental return alone, as there are a number of marketplaces that may experience an influx of properties over the short term, which could skew yields. Off the plan sales are a key area to watch. Investors should also be wary that there may be a considerable amount of competition, as prices continue to drop in some cities.

A good strategy for investors is to have contingency funds available for periods of vacancy or reduced rental return. A contingency fund can help one ride out bumps in the market and any long periods of vacancy. And if you find a good tenant, consider incentivising them to stay as a tenant. Paying for their gardening or providing them with slightly reduced rent are both common strategies aimed at rewarding and keeping good tenants. 

Buyers and investors alike should endeavour to build and maintain strong working relationships with relevant real estate agents. Be proactive with your research and communicate with the agents regularly so that if a property arises that matches your goals, you may be one of the first contacted and can act quickly.

While a price correction is underway in the market at present, this scenario is presenting unique buying opportunities. Obtaining finance early, clearly defining your budget, creating a contingency fund and developing strong relationships with local agents – are all factors that will place you in a strong position to buy property and to help ensure your investment is successful.

 

Who are the winners from the property downturn?

Wednesday, October 10, 2018

National dwelling values decreased again in September, marking 12 consecutive months of falling values. The result firmly marks the end of the boom in the Australian housing market and what may be a prolonged housing price correction.

The correction has largely been driven by Sydney and Melbourne, where the vast majority of Australia’s property value lies.

Once again, the extent of the correction has been overstated and is being continually exaggerated by certain media outlets. As an example, while values have dropped by 6.1% in Sydney over the last 12 months, they achieved remarkable double digit growth in many years preceding this period. While people who bought over the last year will certainly not be overly happy with where values are, a large pool of owners are still sitting on large capital gains.

On top of this, we’re still seeing a situation where there remains ‘markets within markets’ in Australia. Over the last 12 months, Brisbane, Adelaide, Hobart and Canberra, achieved capital gains over the period in question.

The current price correction is a result of the low interest rate environment that the nation has experienced, and continues to do so.  When the RBA cut rates to encourage economic growth, the Australian market witnessed a buying frenzy, with house prices rising much more than they should have, in my opinion.

During this period, certain parties did everything they could to limit foreign investment, despite the fact that this inbound capital was driving the large construction booms we saw in many markets.  As I said at the time, the problem with this approach is that if you’re not accommodating to foreign investors, they may not be there when you really need them. This scenario appears to be playing out at present.

While I do not believe the correction is as bad as many parties are trying to make out, it is happening, and there will be some winners from this movement in prices.

First home buyers may now have many more opportunities to enter the market than they did in the past. Prices are more affordable in many markets and there is likely less competition for properties.

Property prices in many areas of Western Australia, South Australia and even Brisbane look quite attractive to me. Property investment is a long-term game and I suspect there could be many long-term winners from savvy investments into these markets.

Eventually, as typically happens with free markets, prices reach a low point, where they suddenly become extremely attractive to investors and buyers. Where that point lies is always difficult to tell but prices will eventually stabilize, and then recover.

In the end, I firmly believe that Australia is a wonderful investment destination with a strong economy and great prospects for the future. The housing price correction that we are seeing will present some great buying opportunities for those who believe in the future of Australia and the wealth that can be generated out of its property market

 

Is the property market fall a disaster for all?

Monday, September 10, 2018

National dwelling values were down for the 11th consecutive month in August and this result may leave many people wondering what the traditionally busy spring market will hold.

In the current market, downsizers, first home buyers and investors are seeing pockets of value across the market. However, tight credit conditions are making it tough for many to borrow.

Interest in real estate never seems to abate. The media is always able to find a good headline, whether it’s covering a boom or a falling market.

There is no doubt that a change in the market is happening but does this mean disaster for everyone?

Not so long ago, various state governments were very vocal on how they were focused on affordability issues. With prices falling in many markets, there seems to be less of this type of chatter at present.  This suggests to me that governments may be thinking about reining in some of the current first home buyer incentives.

Opportunities for first home buyers and downsizers are now in abundance however, first home buyers may face a new challenge in the form of the banks.

Interest rate hikes, which I believe the banks have started delivering now to avoid being seen as unfriendly around Christmas time, and the Royal Commission into banking, have had a very noticeable impact in the market. 

The biggest impact has come from the Royal Commission. The number of loans rejected has spiked significantly, leaving many first home buyers out of pocket and unable to secure a loan.

Many homeowners and investors are being encouraged to refinance their loans if their bank is independently raising rates but a recent survey from Digital Finance Analytics showed that this may be a lot harder than many people think. The survey suggested that around 40% of people who tried to refinance a property loan recently were unable to do so. 

In my view, tight lending conditions will negatively impact property values moving forward. If government intervention does not occur to rectify the imbalance, property values will be impacted even more in the future and negative equity, particularly for buyers who purchased within the last 24 months, may become a major issue.

If we see a situation where interest rates are rising and property values are declining, I fear that thousands of property owners will become financially stressed, which is not good news for the market.

It’s fantastic that many affordable buying opportunities are presenting in the current market but it’s also important that people can attain finance to take advantage of them.

 

Are we heading for a property crash?

Thursday, August 16, 2018

Many Australians might have become quite nervous about the property market of late.

Sydney recently posted the largest annual fall in house prices since the GFC and in July, Melbourne led the country in terms of declining values - recording a near one per cent decline. 

Negative media headlines are likely concerning the public and leading to a type of self-fulfilling prophecy when it comes to negative housing sentiment.  The reverse can also be true, with positive headlines during boom times often creating a ‘fear of missing out’ buying environment.

Common questions I hear at the moment are: “Is this the start of crash?” “Should I rush to sell now?” “How far will the market fall?”.

While it can be dangerous to try to predict the future, I thought it might be helpful to take a step back and look at the market in context.

Firstly, while the market posted a 1.6% decline in capital city values over the past twelve months, CoreLogic reports that values are still an incredible 31% higher than they were five years ago. So while the market has lost some momentum of late, in this context, recent falls may not be as dramatic for the market as many are saying.

The second interesting point worth noting about the market is that while Australia’s largest property markets of Sydney and Melbourne have been pulling the market down lately, many other regions are performing well or very well. 

On an annual basis, Brisbane (+1.2%), Adelaide (+0.7%) and Canberra (+2.4%) have all recorded price increases in their respective markets.

Some are arguing that the Perth property market may have hit the bottom and green shoots are starting to appear.

Hobart has recorded an incredible 11.4% increase in prices over the previous year and led the nation in terms of growth over the recent quarter.

While many are right to be concerned about the slowdown in the larger markets, there remains ‘markets within markets’ in Australia and to say that the entire market is experiencing dramatic price declines is inaccurate.  

Lastly, we are in a traditional slow winter real estate season. Auction clearance rates are falling in many markets and a lot buyers and sellers have chosen to sit on the sidelines until spring. 

While I do not expect that spring will deliver incredible growth statistics like it has in previous years, it still may provide us with a better understanding of how the market is truly travelling. 

I often say that real estate is a great place to be if you don’t have to sell and this may be especially true in this market. Long term investors often reap incredible rewards by riding out different market cycles and consistently building their portfolios with high quality assets.

Due to the ongoing health of the Australian economy and the low interest rate environment, I don’t believe that the current slowdown in the market is a precursor to a property market crash. In fact, a slight downturn in prices, or more moderate growth levels, could be a good thing for the market over the medium to long term.

My preference has always been for the market to achieve modest price growth. In my experience, this type of scenario often creates more sustainable markets which can benefit all property owners. 

 

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