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John McGrath
Property Expert
+ About John McGrath
About John McGrath - Founder & Executive Director, McGrath Limited

John McGrath is considered one of the most influential figures in the Australian property industry.  As Founder and Executive Director of McGrath Limited, he took McGrath Estate Agents from a lounge room start-up in 1988 to one of Australia's most successful residential real estate groups, listing McGrath Limited on the Australian Stock Exchange in November 2015.

An integrated real estate services business, McGrath today is one of the most successful real estate companies in Australia with an established and respected market presence in NSW, the ACT, Queensland, and more recently Victoria.

In October 2008, John was honoured by the Real Estate Institute of NSW with the Woodrow Weight OBE Award, a lifetime achievement award for his outstanding contribution to the real estate industry.  John was founding director of the REA Group and served on its board from 1999 to January 2018, serving as chairman from 2003-2007. 

John himself has become a spokesperson for the industry both in Australia and internationally. John has five books that have reached bestseller status including “You Don’t Have To Be Born Brilliant” and “You Inc.”.  In “The Ultimate Guide to Real Estate”, John shares with the reader his invaluable knowledge on the Australian property market.

Property price growth in every market segment

Tuesday, October 15, 2019

A new report from CoreLogic shows price growth in every market segment of the east coast capital cities during the September quarter.

The data shows a clear turnaround with price growth as high as 4.6% in the lower, middle and upper brackets in Sydney, Melbourne, Brisbane and Canberra. 

It’s the upper end leading the recovery in Sydney and Melbourne, with buyers keen to capitalise in premium suburbs where homes are about 10-15% off peak market value.

In Brisbane, the middle market is strongest but overall growth is still minimal.

Let me give you some details on what’s happening in each market segment of our east coast capitals. Then we’ll take a look at the regional markets and see what’s happened with prices there over FY2019, with new annual data recently released.

Sydney

Top quartile property prices are -13.6% below the market peak in July 2017.

During the September quarter, the top quartile recorded the strongest growth at 4.2%, followed by the middle market at 3.2% and the lower market at 2.1%.

Melbourne

Top quartile property prices are -11.9% below the market peak in November 2017.

During the September quarter, the top quartile recorded the strongest growth at 4.6%, followed by the middle market at 2.5% and the lower market at 2.1%.

Over my 35 years plus in real estate, I’ve been through a lot of market cycles and it’s common to see recoveries start in prime inner-city locations where property is more expensive. It happens because the correction makes these desirable locations more affordable.

Brisbane

The middle market is performing best in Brisbane, with 0.8% growth during the September quarter, 0.7% for the lower end and 0.2% for the prestige sector.

These are small growth numbers but they indicate that Brisbane is on the up. Brisbane isn’t recovering from a major cyclic correction like Sydney and Melbourne. It’s only recovering from a short-term downturn largely created by severe credit restrictions that affected every market.

Canberra 

The prestige sector in our national capital also had the greatest growth during the September quarter at 1.9%, compared to 1.3% for the middle and 0.8% for the lower end. Upper quartile values were at a record high at the end of the September quarter.

Property prices haven’t fallen in Canberra like they have in Sydney and Melbourne in recent years. Canberra had 9.6% capital growth overall in FY2017 and then the pace of growth slowed to 2.3% in FY2018 and 1.4% in FY2019. It remains a solid, stable market.

Regionals

CoreLogic has released national data for FY2019 and it’s interesting to see how well some of the major regional areas of the eastern states did while the capital cities struggled.

Here are some notable examples by council area:

  • Ballarat, VIC – median house prices up 9.3% for the year to $382,500 and median apartment prices up 5.4% to $260,000
  • Geelong, VIC – median apartment prices up 9% to $387,000 and median house prices up 4.9% to $535,000
  • Byron Shire, NSW – median apartment prices up 7.6% to $753,500
  • Noosa, QLD – median apartment prices up 7% to $571,250
  • Upper Hunter, NSW – median apartment and house prices up 6.5% to $245,000 and $330,000 respectively
  • Ballina, NSW – median apartment prices up 5.9% to $495,000

Some major regional council areas had a price dip, indicating new value on offer for buyers:

  • Townsville – median apartment prices down -16.5% to $229,000 and median house prices down -3.1% to $325,000
  • Kiama, NSW – median house prices down -10.5% to $850,000
  • Wollongong, NSW – median house prices down -5.1% to $715,000 and median apartment prices down -4.2% to $570,000
  • Wingecarribee, NSW (Southern Highlands) – median house prices down -3.7% to $790,000
  • Blue Mountains, NSW – median house prices down -3.7% to $650,000

With home values in the capital cities trending northwards; and many regional markets presenting good opportunities, the Spring selling season is a great time to consider how to take advantage of these trends for your own wealth creation in property.

 

Perfect storm for growth brewing

Tuesday, October 08, 2019

Latest figures from CoreLogic showed another dramatic month of price growth in Australia’s two biggest cities, with median home values up 1.7% in both over September.

It might not sound like much but if we had that sort of price rise every month for a year, values would be up 20%-plus and that’s boom time growth in anyone’s language.

Interest rates are a key driver of buyer confidence so last week’s 0.25% reduction in rates will be well received by the market, even though many lenders didn’t pass on the full cut. Long term low rates make the Australian dream of home ownership more achievable.

They also open up attractive investment opportunities, particularly given the RBA has told us to expect “an extended period of low interest rates” and that they could go even lower.

The crucial question is, how will you leverage these record low rates to grow your own wealth?

Since June, the median home price has gone up by 3.6% in Sydney and 3.5% in Melbourne.  One of the reasons for this is a lack of stock for sale.

SQM Research shows a 4% dip in homes for sale nationally over September, which is highly abnormal for the first month of Spring and puts the supply/demand dynamic firmly in favour of sellers.

Melbourne stock for sale was down -5.8% and Sydney -5.7%. Over the year, Sydney was down -20.4%. That’s why we’re seeing auction clearance rates back in the 70% range compared to mid-40% and 50% last Spring.

SQM Research Managing Director, Louis Christopher said lower listings, rising asking prices and rising clearance rates suggested Sydney “has indeed entered into a new housing boom”.

“Melbourne is not that far behind the mark as well,” Christopher says. “I think we can expect to record rapid rises in dwelling prices for our two largest cities at least in the December quarter and likely beyond.”

In the Australian Financial Review, CoreLogic’s Head of Research, Tim Lawless, said Sydney and Melbourne were “back to boom-time conditions”.

“I’d like to see more than just two months of that trend before I’d be calling that the marketplace is back into significant growth phase, but the indicators are showing what’s where it’s heading,” Lawless said.

We’re seeing lots of stories about homes selling well above reserve in many real estate markets but remember, today’s reserves are much lower than they were a couple of years ago. It’s unlikely that any buyer is paying above the peak prices of 2017 when the median was 15-20% higher.

To me, this Spring is unique as it provides a rare ‘everyone wins’ scenario. Buyers are purchasing for prices well below the peak, but many sellers are achieving better than expected results. Plus, both sides are benefitting from historically low interest rates and easier finance.

The RBA has made it clear that we’re in for a long period of low interest rates, so I’d love to see more investors taking advantage of this, not just home buyers. ‘Early adopters’ of new market conditions could pick up very good capital gains over the medium to long term with a purchase this Spring.

This is especially the case in Queensland, where rental yields are very impressive and the market is not recovering as fast (Brisbane median values up 0.5% since July compared to 3.5% in Sydney and 3.3% in Melbourne and Regional Queensland values up 0.5% in September alone.)

Brisbane houses are selling for a median $540,000 with a gross rental yield of 4.4%.  Gold Coast houses are selling for a median $630,000 also with a 4.4% yield.  Sunshine Coast houses have a median of $600,000 and a rental yield of 4.3%. Apartments in all three areas are yielding 5-5.5%.

With latest advertised investor loans around the mid-3% range, the rent on a Queensland investment property would more than cover your interest payments, so it’s a great time to be looking north for opportunities before the market takes off up there, too!

 

Where are property prices growing the most?

Tuesday, October 01, 2019

Sydney, Melbourne and Brisbane were still in a downturn for the first half of 2019, but you wouldn’t have known it in some suburbs where house prices actually grew strongly while the cities as a whole were in decline.

Buyers and home owners in Box Hill, in Sydney’s west; and Vaucluse, in the east, were seeing prices rise by more than 20% over FY19, while Sydney’s overall median declined by -10.8%.

It just goes to show how important local factors can be in market movements and in fact, there are many markets across the country. And not every suburb will move in line with citywide trends.

Here are the top 10 growth suburbs for house prices in the East Coast’s capital cities and regional areas in FY19, according to new data from CoreLogic.

Canberra (Median up 2.4% in FY19) 

  1. Holder up 16.4% to a median house price of $698,500
  2. Calwell up 14.4% to $629,000
  3. Latham up 12.2% to $595,000
  4. Theodore up 12% to $580,000
  5. Yarralumla up 11.9% to $1,570,000
  6. Conder up 11% to $605,000
  7. Duffy up 11% to $729,000
  8. Crace up 10.9% to $815,000
  9. Farrer up 10.2% to $907,500
  10. Spence up 9.1% to $625,000

Brisbane (Median down -2.5% in FY19)

  1. Chelmer up 21.8% to a median house price of $1,217,500
  2. Auchenflower up 19.4% to $1,277,500
  3. Wilston up 16.8% to $1,010,000
  4. Northgate up 16.2% to $732,000
  5. Balmoral up 15.8% to $1,100,000
  6. Karana Downs up 11.6% to $505,000
  7. Corinda up 10.7% to $825,000
  8. Deagon up 10.2% to $512,500
  9. Durack up 9.4% to $448,500
  10. Toowong up 9.0% to $890,500

Melbourne (Median down -11.8% in FY19)

  1. Clyde up 36.8% to a median house price of $526,500
  2. Koo Wee Rup up 14.6% to $530,250
  3. Whittlesea up 10.8% to $587,500
  4. Clyde North up 9.9% to $582,500
  5. Cairnlea up 6.7% to $760,000
  6. Middle Park up 4.3% to $2,705,000
  7. Pearcedale up 3.8% to $680,000
  8. Ascot Vale up 3.8% to $1,175,000
  9. The Basin up 3.1% to $670,000
  10. Officer up 3.0% to $550,000

Sydney (Median down -10.8% in FY19) 

  1. Box Hill up 26.6% to a median house price of $795,000
  2. Vaucluse up 22.7% to $6,225,000
  3. Collaroy up 14.6% to $2,750,000
  4. Cabramatta up 12.8% to $905,000
  5. Sans Souci up 10.1% to $1,560,000
  6. Summer Hill up 9.7% to $1,701,000
  7. Palm Beach up 7.9% to $3,183,500
  8. Rose Bay up 7.4% to $4,190,000
  9. Seaforth up 3.0% to $2,575,000
  10. Burwood up 2.9% to $845,000

Regional QLD (Median down -2.0% in FY19) 

  1. Blackwater up 73.5% to $147,500
  2. Wandal up 28.2% to $282,000
  3. Biggera Waters up 20.6% to $780,000
  4. Emerald up 18.5% to $320,000
  5. Jacobs Well up 18.1% to $568,500
  6. Moranbah up 17.6% to $220,000
  7. New Auckland up 15.7% to $320,000
  8. Mount Pleasant up 15.3% to $410,000
  9. Parrearra up 15.3% to $775,000
  10. Dayboro up 14.1% to $585,000

Regional VIC (Median down -0.8% in FY19)

  1. Mount Pleasant up 30.1% to a median house price of $370,000
  2. Terang up 26.9% to $219,500
  3. Brown Hill up 23.5% to $425,000
  4. Golden Point up 19% to $375,000
  5. Warburton up 17.5% to $517,500
  6. Wendouree up 16.8% to $327,000
  7. Irymple up 16.4% to $340,000
  8. St Leonards up 15.9% to $565,000
  9. Lake Wendouree up 15.8% to $741,000
  10. Drysdale up 15.8% to $529,000

Regional NSW (Median down -4.9% in FY19)

  1. Teralba up 30.3% to $430,000
  2. Temora up 22.8% to $275,000
  3. Cootamundra up 21.7% to $255,500
  4. Mulwala up 19% to $364,000
  5. Aberdare up 18.6% to $393,750
  6. Urunga up 17.4% to $540,000
  7. Holbrook up 17.4% to $192,500
  8. Tatton up 16.5% to $565,000
  9. Surf Beach up 16.4% to $501,250
  10. Coolamon up 14.8% to $298,500

Source: CoreLogic 12 months to June 30, 2019

 

Australians are moving house less often

Tuesday, September 24, 2019

Australian home owners are staying at the same address for longer than ever before, with a new report showing the average length of ownership for both houses and apartments is rising rapidly.

According to CoreLogic, house owners are staying put for four years longer than they did a decade ago. Apartment owners are keeping their properties for three years more than the 2009 average.

Nationally, the length of ownership has risen to 11.3 years for houses and 9.6 years for apartments. This has been an ongoing trend since 2005 and is happening in parallel with a declining number of sales per year.

I think the No 1 reason people are staying put longer is the high transition costs of moving house.

Upgrading families in major cities are paying close to $100,000 in fees and taxes. That doesn’t include the additional purchase price or borrowings – it’s basically just to make the move. Most of that $100,000 is the absurd cost of stamp duty, which is nowadays out of touch with reality.   

Take a look at the stats. According to CoreLogic, the average hold period for houses is highest in Sydney and Melbourne at about 12-and-a-half years. Back in 2009, Sydney and Melbourne houses were turning over about every nine years.

These are Australia’s two most expensive markets, which implies a connection between high and rising costs of housing and how often people are willing to move.

Firstly, rising property prices have a bearing on borrowing capacity. Some people simply can’t borrow enough, based on their earnings, to upgrade to a larger home at today’s market values.

Secondly and more importantly, rising property prices also impact transition costs. The higher your purchase price, the higher your stamp duty, so upgraders are the worst affected.

Let’s take a look at the tenure periods for cities and regional areas and how far they’ve increased over the past 10 years.

Greater Sydney

Average house ownership: 12.4 years in 2019 compared to 9 years in 2009

Average apartment ownership: 9.6 years in 2019 compared to 7.3 years in 2009

Rest of NSW

Average house ownership: 10.5 years in 2019 compared to 7.7 years in 2009

Average apartment ownership: 9.2 years in 2019 compared to 6.8 years in 2009

Greater Melbourne

Average house ownership: 12.5 years in 2019 compared to 8.7 years in 2009

Average apartment ownership: 9.3 years in 2019 compared to 7.1 years in 2009 

Rest of Victoria

Average house ownership: 11.1 years in 2019 compared to 8.5 years in 2009

Average apartment ownership: 9.8 years in 2019 compared to 7.7 years in 2009 

Greater Brisbane

Average house ownership: 11.3 years in 2019 compared to 7 years in 2009

Average apartment ownership: 9.8 years in 2019 compared to 5.8 years in 2009

Rest of Queensland

Average house ownership: 11.1 years in 2019 compared to 6.5 years in 2009

Average apartment ownership: 9.8 years in 2019 compared to 5.9 years in 2009

Australian Capital Territory

Average house ownership: 10.9 years in 2019 compared to 7.1 years in 2009

Average apartment ownership: 8.7 years in 2019 compared to 6.4 years in 2009

Greater Adelaide

Average house ownership: 10.1 years in 2019 compared to 6.1 years in 2009

Average apartment ownership: 9.6 years in 2019 compared to 5.7 years in 2009

Rest of South Australia

Average house ownership: 10.8 years in 2019 compared to 6 years in 2009

Average apartment ownership: 9.9 years in 2019 compared to 5.9 years in 2009

Greater Perth

Average house ownership: 11 years in 2019 compared to 6.2 years in 2009

Average apartment ownership: 10.8 years in 2019 compared to 5.9 years in 2009

Rest of Western Australia

Average house ownership: 10.9 years in 2019 compared to 5.7 years in 2009

Average apartment ownership: 10.2 years in 2019 compared to 5.5 years in 2009

Greater Hobart

Average house ownership: 10.9 years in 2019 compared to 7.6 years in 2009

Average apartment ownership: 9.6 years in 2019 compared to 7 years in 2009

Rest of TAS

Average house ownership: 10.7 years in 2019 compared to 7.4 years in 2009

Average apartment ownership: 9.1 years in 2019 compared to 7.2 years in 2009

Greater Darwin

Average house ownership: 9.2 years in 2019 compared to 4 years in 2009

Average apartment ownership: 9.5 years in 2019 compared to 4 years in 2009

Rest of Northern Territory

Average house ownership: 8.9 years in 2019 compared to 4.5 years in 2009

Average apartment ownership: 8 years in 2019 compared to 3.9 years in 2009

Source: CoreLogic

Breaking the data down further into council areas, the top 10 list of areas for longest ownership is dominated by Melbourne, Sydney and regional Queensland.

Longest ownership of houses by council area

1.     Monash, VIC 17.1 years

2.     Queenscliffe, VIC 16.6 years

3.     Whitehorse, VIC 16.2 years

4.     Hornsby, NSW 16.2 years

5.     Manningham, VIC 16.2 years

6.     Hinchinbrook, QLD 16 years

7.     Knox, VIC 15.7 years

8.     Canada Bay, NSW 15.7 years

9.     Banyule, VIC 15.6 years

10.  Blackall-Tambo, QLD 15.6 years

 Longest ownership of apartments by council area

1.     Armadale, WA 13.4 years

2.     Swan Hill, VIC 13.4 years

3.     Albany, WA 13.1 years

4.     Cassowary Coast, QLD, 12.8 years

5.     Wangaratta, VIC 12.7 years

6.     South Burnett, QLD 12.7 years

7.     Tablelands, QLD 12.6 years

8.     Bayswater, WA 12.5 years

9.     Mosman Park, WA 12.4 years

10.  Colac-Otway, VIC 12.3 years

Source: CoreLogic

Stamp duty is the issue that nobody wants to talk about in Government, on either side. It rakes in too much money for them. So, the unfortunate reality is that home buyers, particularly in Australia’s highest priced markets, must carefully factor the costs of moving into their purchasing budgets.

Commonly, people add the stamp duty cost to the borrowings for their new home and pay it off over several years.

Those who can’t afford these transition costs will simply stay put, with many preferring to put their savings or available equity into renovating and creating the space they need instead of moving.

 

Where returning investors should buy their next property

Tuesday, September 17, 2019

We are seeing the first signs of investors returning to the property market after a bit of a hiatus due to credit restrictions, higher interest rates on interest-only loans and rental yields getting too low in Sydney and Melbourne as prices went higher through to 2017.

Latest figures from the Australian Bureau of Statistics show the value of new loans to investors (excluding refinancing) across Australia jumped by 4.7% in July – the highest monthly gain since September 2016.

On the east side of the country, Canberra led the investor charge with a 22% spike in the value of loans from June to July, followed by Queensland at 8.1%, Victoria at 5.7% and NSW at 2.0%.

Investment activity is still well down on previous years, but it looks like some people are re-engaging with property now that prices are lower in many metro and regional markets.

Also contributing would be the two interest rate cuts, the easing in lending criteria and a lack of appealing alternative investment options due to low deposit rates and sharemarket volatility.

My best piece of advice for property investors is to buy quality and focus on location and aspect.

Go for a quality property in a great street, in a desirable neighbourhood, with plenty of amenities such as cafes, shops and public transport. These properties might cost a bit more, but you’ll get better capital gains.

I also recommend drive-by investing – purchasing in a suburb close enough to home or work so you can get to your property easily.

In terms of locations, I think a good strategy is buying close to new infrastructure. There is so much building going on and this is creating opportunities for investors to capitalise, especially in areas where prices have fallen during the downturn. Here are some examples on Australia’s east side.

Canberra – Canberra Metro

Infrastructure: Light rail

Opened: April 2019

Impact: The 13-station light rail line connects the city with the inner north and outer north Gungahlin region. Services run every 6 minutes in peak hour. The suburbs with stations include Braddon, Turner, Dickson, Lyneham, Downer, Watson, Harrison, Franklin and Gungahlin.

Opportunity: Great time to buy along the line, targeting properties within a 10-minute walk of stations. Median prices in Franklin, which has three stations, peaked in 2017 at $748,500 for houses and in 2015 at $409,500 for apartments, according to Hometrack Australia data. The medians today are $683,500 and $367,250 respectively, according to CoreLogic.

Closer to the city in Lyneham, the median price has dipped from $860,000 in 2017 to $756,000 today for houses and from $456,500 in 2015 to $395,000 today for apartments.

Prediction: CoreLogic-Moody’s Analytics predicts 9.2% growth for houses and 8.2% for apartments across Canberra over CY20 and CY21.

Brisbane – Cross River Rail

Infrastructure: Heavy train line

Starting: End of 2019, with the aim of opening 2024 

Impact: Stretching from Dutton Park to Bowen Hills, the 10.2km line will provide a second river crossing so more trains can run. It will include four new stations and revitalised precincts at Boggo Road, Woolloongabba, Albert Street and Roma Street, with upgrades to existing stations at Dutton Park, Exhibition, Salisbury, Rocklea, Moorooka, Yeerongpilly, Yeronga and Fairfield.

Opportunity: We tend to see a lift in property values when projects are announced, commenced and completed. Using Woolloongabba as a case study, the median house price sat around $770,000 from 2015 to 2018 but is now starting to grow. It’s $822,000 today, up 7.9% over FY19. The median apartment price has been drifting down since 2015 from $526,500 to $405,000 today.

Prediction: CoreLogic-Moody’s Analytics predicts 1.2% growth in house prices and 9.1% growth for apartments over CY20 and CY21 in Brisbane-South, which incorporates Woolloongabba, Fairfield, Dutton Park and Yeronga.

Sydney – Sydney Metro North West

Infrastructure: Heavy train line

Opened: July 2019

Impact: A game changer for the Hills District, where residents have had to endure long trips on packed buses to the CBD for many years

Opportunity: Fantastic time to buy in suburbs along the line within a 10-minute walk of stations. Hills prices dipped 10-15% in line with Sydney throughout the downturn. For example, Castle Hill’s median house price in 2017 was $1,620,000 and today it is $1,347,500. The median apartment price in 2017 was $890,000 and today it is $815,000. 

Prediction: CoreLogic-Moody’s Analytics predicts 15.3% house price growth in Baulkham Hills/Hawkesbury, which encompasses the Hills; and 9.5% for apartments over CY20 and CY21. 

Melbourne – North East Link

Infrastructure: Freeway

Starting: 2020, with the aim of opening 2027 

Impact: Connecting the M80 with an upgraded Eastern Freeway, this $15.8 billion road will cut travel times by up to 35 minutes to Melbourne’s rapidly growing northern suburbs. The commute by public transport will improve with the city’s first dedicated busway, with express lanes along the Eastern Freeway from Doncaster to the city.

Opportunity: Suburbs along the new road’s corridor should receive a boost. Take Greensborough, which will see greatly improved traffic flow with a new interchange at Grimshaw Street as part of the project. The median house price peaked at $830,000 in 2017 and today it sits at $755,000. The median apartment price was $633,750 in 2018 and it is now $570,000.

Prediction: CoreLogic-Moody’s Analytics predicts very strong growth of 18% in house prices in the North East, which includes Greensborough; and 5.1% growth for apartments over CY20 and CY21.

 

Why fear is leaving the property market this Spring

Tuesday, September 10, 2019

It’s pretty clear now that Sydney, Melbourne and Brisbane are in recovery mode and things are looking up nationally as well.

CoreLogic’s latest report, released last week, showed Sydney dwelling values went up by 1.6% - the highest monthly gain since June 2017. Melbourne bounced 1.4% - the highest gain since July 2017. Brisbane also had a small bounce of 0.2%. 

These are surprisingly strong monthly results this early into the recovery. It’s the third consecutive month of price growth for Sydney and Melbourne and the second for Brisbane.  

On a national basis, August produced the first home price rise since October 2017 at 0.8%.

Regional markets are mixed, but we have seen some price gains over the past three months in the Capital Region (areas surrounding ACT), Newcastle and Lake Macquarie and Richmond-Tweed (NSW), Wide Bay and Townsville (QLD) and Geelong (VIC).

The election result, two interest rate cuts and APRA’s easing of credit criteria (which has increased the lending criteria for many) are having a cumulative impact across Australia. 

The effect is greater in Sydney and Melbourne because these markets are on the rebound from an 18-month downturn and a greater decline in values – they’re not just recovering from tough credit restrictions which have pulled every market down a bit in recent times.

The things we are seeing in the big recovery markets of Sydney and Melbourne right now mirror the trends of past recoveries, providing further evidence that the bottom has arrived or to some extent even passed by now.

The typical scenario in a recovery is a stabilisation in prices, higher auction clearance rates and a lower volume of homes for sale.

According to CoreLogic, auction clearances have bounced back into the 70% brackets for Sydney and Melbourne – the highest levels since early 2017; and they’re above 70% for the combined capital cities, too.

New listings (defined as properties not previously advertised for sale over the past six months) are down -23% in Sydney, -20% in Melbourne and -17% nationally.

What typically happens next is we start to see increasing values, which leads to a higher volume of homes for sale as vendors gain new confidence to sell.

This doesn’t necessarily happen quickly, as demonstrated by sales data in the most recent recovery periods of 2009 and 2011.

We also saw a low volume of auctions in the recovery of early 2012 and things remained this way until early 2013. We know now that the boom period for Sydney and Melbourne began in mid-2012 but the very start of major growth periods is never obvious at the time.

This time around, auction clearance rates have been improving since the middle of May this year but the volume of homes for sale and the number going to auction remains low.

This is because home owners are waiting for more consistency before selling. They want to see similar properties down the road selling for a price that would be acceptable to them.

Looking at the history of market booms and downturns, on a national basis this current downturn was the biggest in terms of reduced home values since at least the 1980s.

That sounds scary but the reality is our national median only dropped by less than -10%.

Research analyst, Cameron Kusher from CoreLogic puts it well when he says this “speaks to the ongoing strength of the housing market over the past 40 years, which has culminated in Australia being one of the most expensive places in the world in which to buy property”.

Focusing on the big East Coast cities for a moment, let’s take a look at the largest downturns in terms of home value declines in Sydney, Melbourne and Brisbane since the 1980s.

This data from CoreLogic shows peak to trough percentage falls and proves that even in the worst three downturns, the falls were relatively small and certainly nothing dramatic.   

Sydney – Top 3 Downturns

2017-19           -14.9%

1988-91           -11.6%

1984-85           -9.5%

Melbourne – Top 3 Downturns

2017-19           -10.9%

2008-09           -9.4%

2010-12           -8.4%

Brisbane – Top 3 Downturns

2010-12           -10.6%

2008-09           -8.4%

1994-95           -5.0%

Source: CoreLogic

All of this explains why fear is, and should, be leaving the East Coast markets this Spring.

The recovery has begun and while I don’t expect August’s big bounce in median prices in Sydney and Melbourne to continue every month, we should see solid results in all three East Coast cities this Spring, with a positive flow-on effect to 2020.

 

A buoyant Spring property season ahead

Tuesday, September 03, 2019

It’s the first week of Spring and the beginning of what is traditionally the busiest season in property. 

It is clear that confidence is returning to the market across Australia, with several positive elements -all national in nature, having an impact on every capital city and regional area.   

First came the election result, which meant no changes to negative gearing or capital gains tax for investors; then two interest rate cuts; and an easing in lending that has allowed some borrowers to access tens or even hundreds of thousands of dollars in extra finance compared to last year.

This has led to the first green shoots of recovery on the East Coast.

In June, Sydney and Melbourne recorded home value increases for the first time since their respective market peaks in 2017.

In July, five of the eight capital cities all had a subtle rise in values, according to CoreLogic data. This included an 0.2% increase in Brisbane home values – the first increase since November 2018.

In mid-August, the combined capital cities recorded a final auction clearance rate above 70% for the first time since May 2017, albeit on significantly lower volumes of stock. And the latest Westpac-Melbourne Institute ‘time to buy a dwelling’ index is at its highest level since early 2014.

This new momentum points to a buoyant Spring season ahead, however listing volumes are down by up to 30% - a decade low, so we anticipate fewer Spring sales but continually rising auction clearance rates in the major cities and particularly in the most desirable suburban pockets.   

As we start to see consistently stronger prices being achieved, more sellers will be inspired to put their homes on the market, indicating a potentially later Spring/Summer selling season this year.

Due to the stock shortage, buyers are proactively calling agents to see what new listings they have coming up so they can try and get a jump on the best properties for sale.  They can see the bottom has passed and want to buy now before prices start rising again.

Besides calling agents, the best way to get first option on new listings is to register your contact details and buying criteria with as many individual agencies and agents as possible.

This is important because many agents like to conduct ‘preview inspections’ for their database clients. In this case, you will at least get first email notification of each new listing – and maybe even the opportunity to inspect it before the public marketing begins.

This will give you about half a week’s head start on other buyers. You can make an offer to try and take it off the market or you can just use this extra time to consider the home.

Agents do previews for a couple of reasons. They get valuable price feedback from genuine buyers before public marketing begins; and they can potentially attract strong pre-campaign offers.

It is not uncommon for sellers to take a good pre-campaign offer as there are many benefits for them, including avoiding advertising costs and being able to make their next purchase sooner.

Of course, you should still register on the big portals of realestate.com.au and domain.com.au to cover all bases, as not all agencies conduct preview inspections.

Here are some potential Spring trends…

  • There is already anecdotal evidence of more buying activity amongst ex-pats, especially from Hong Kong and the UK.
  • Following recent volatility on the sharemarket and falling interest rates making deposit earnings very weak, will investors return to property for stability and reliability now that the bottom has passed? 
  • McCrindle Research says seachanging is getting younger, with more working age people leaving Sydney, in particular, for coastal and treechange locations. With city stock so low, sellers can leverage this to get a great sale price and buy in a much cheaper regional area this Spring  

Easier access to finance and historically low interest rates will power demand this Spring.  There’s speculation of one or two more official cash rate cuts over the next year, so it’s a great time to borrow if your employment is secure and you have some cash buffers in place.

 

The best time for first home buyers

Tuesday, August 27, 2019

It’s been such a long time since market conditions directly favoured young buyers, particularly in Sydney and Melbourne, and now the stars have aligned for them in every way.

History shows that first home ownership has provided a crucial foundation for long term financial security for millions of Australians. This Spring presents an immense opportunity for young people who have felt left behind by runaway markets to take that big first step onto the property ladder.

Here’s what first home buyers have going for them…

  • The lowest home loan interest rates since the 1950s, with talk of one or two more official cash rate cuts over the next year
  • An APRA-led loosening in lending criteria, which is now in effect across all lenders and enables more borrowing power
  • Improved or steady affordability in both capital cities and regional areas
    • Values down -13.5% since the peak of the boom in Sydney. Melbourne down -8.2%, Brisbane down -2.4% and Canberra stable with only 1.1% growth over the past 12 months, according to latest CoreLogic data
    • Values down -4.6% in Regional NSW over the past year; -1.7% in Regional Queensland; and -0.9% in Regional Victoria
  • Less competition from Australian investors, with investor activity falling 40-50% on 2016/2017 peaks in NSW, Victoria, Queensland and ACT, according to ABS data  
  • Less competition from foreign investors, with hefty application fees and state taxes putting off overseas buyers, particularly in the sub-$1 million new apartment category
  • Stamp duty concessions, with no duty payable on new or established properties up to $650,000 in NSW (concessions up to $800,000); $600,000 in Victoria (concessions up to $750,000); and $550,000 in Queensland (for properties above $550,000, eligible buyers can claim a concession on the first $350,000 of the purchase price). In the ACT, no buyer (not just first buyers) pays stamp duty if they meet certain income, family and prior ownership criteria
  • First home owner grants, which are as follows:
    • NSW: $10,000 if you buy land to build your first home worth up to $750,000; or buy a new house or off-the-plan apartment worth up to $600,000
    • Victoria: $10,000 if you build or buy a new property in Melbourne worth up to $750,000; $20,000 if you build or buy in Regional VIC by June 30, 2020 
    • Queensland: $15,000 if you build or buy a new property worth up to $750,000
    • ACT: FHOG replaced by stamp duty savings from July 1, 2019 through the Home Buyer Concession Scheme
  • Help with saving via the Federal Government’s First Home Super Saver Scheme, which provides a tax break for people saving for their first home. You can make voluntary contributions of up to $15,000 per year ($30,000 total), which will be taxed at the superannuation rate of just 15%. These funds, along with earnings, can then be withdrawn for a first home purchase
  • Help with the deposit via the Federal Government’s new First Home Loan Deposit Scheme, which will allow 10,000 young buyers per year to purchase with a 5% deposit and a government guarantee on the rest. There will be purchase price limits per region and income thresholds. Available from January 1, 2020
  • The HomesVic co-equity scheme, whereby eligible first home buyers in Victoria can co-purchase a new or existing property with the Victorian State Government with just a 5% deposit

With such positive market conditions and so much assistance available, now is the time for young people to consider making their first purchase.

I’ve got two pieces of advice to help you this Spring.

Firstly, don’t make assumptions as to whether you’re eligible for assistance. The rules are slightly different in every state. For example, in some states you are still eligible for a FHOG even if you’ve owned an investment property before. Also, some substantially renovated properties are considered new enough for you to be eligible for the grant. Go online and check.

Secondly, don’t overextend yourself. You always want to buy a high quality property in a great location but don’t push yourself too hard. Keep things financially comfortable with buffers in place.

I’d rather you buy a high quality one-bedroom apartment in a brilliant location than overextend and buy a two bedder that will be unaffordable as soon as interest rates go up.

Sure, rate rises might be years away, but remember the life of a loan is usually 25-30 years and in that time, they will surely go up.

Think smart, buy smart.

 

Is property a more stable investment than shares?

Tuesday, August 20, 2019

Investors in the share market have had a rough time of late, with eye-catching headlines about tens of billions being wiped off the ASX in a matter of days last week. 

The world is jittery about a possible global recession caused by the China-US trade war, Brexit, unrest in Hong Kong, slowing growth in China and most recently, a contraction in the world’s fifth largest economy and Europe’s biggest, Germany.  

Over the first two weeks of August, the S&P ASX All Ordinaries took a -5.9% fall, whereas it took six months for property prices to decline the same amount in Sydney before the market turned in June.

In those same two weeks, the All Ords finally went beyond their last peak, which was back in 2007. That means it took 12 years to fully recover from the GFC, whereas the Sydney and Melbourne property markets have taken about two years to right themselves in the most recent downturn.

This is a timely reminder that property is a safer, more reliable and most importantly, stable asset class for everyday investors.

Unless you’re a professional or a very experienced and resilient investor, it’s hard not to get nervous and panic sell when your shares take a sudden dive.  Don’t get me wrong, Australian shares have an impressive track record for great long term returns but the market can get very volatile, very quickly. 

With share market investment, you need to have the psychological strength to weather the sudden and usually sharp dips and remain focused on the long term. 

Shares are also highly influenced by global events.  Market conditions can change overnight, whereas property is a much slower burning asset class and primarily influenced by our domestic economy.

It is so easy to panic when stocks begin to slide; and unlike property, it takes one call to your broker or a two minute online transaction to dump your investments out of pure fear.

This is one of the many reasons why I think property is such a good option for ordinary investors.

We all need to invest for financial security. Unless you’re on a very high income, it’s not really possible to retire on savings alone. You need quality assets.

Any professional investor will tell you that diversity is really important, so having both shares and property is a great idea and there’s some good buying opportunities right now in both!

Focusing on property, it looks like people are starting to recognise this as we head towards the biggest selling season of the year.

The national ‘time to buy a dwelling’ index in the latest Westpac/Melbourne Institute survey of consumer sentiment jumped 3% this month to its highest level since early 2014.

I believe there is great opportunity for investors across Australia this Spring.

·       In Sydney and Melbourne, prices aren’t likely to go any lower in the best areas.  Lack of stock is pushing prices up in some suburbs, so don’t get carried away at auction and pay too much. This very tight supply/demand dynamic could change soon 

·      To maximise capital growth, look into some of the new infrastructure projects and identify areas that are beneficiaries of road and rail enhancements. Some areas have or will soon become 20-30 minutes closer to the CBD so that will spike values in the next sales cycle 

·       Yields are a bit low in our two biggest cities, averaging 3.4% - 3.7%, but falling interest rates are offsetting this.  Avoid oversupplied apartment markets where you’ll have difficulty securing a tenant right now

·       Prices have come off the boil in every other capital plus plenty of regional areas due to lending restrictions.  Things are easier now following APRA-led changes to assessment criteria, effective from July, which means you can borrow more and take advantage of softer prices now 

·       Rental yields are stronger in other capital cities and regional areas. Latest CoreLogic data shows the average gross yield is 4.6% in Brisbane and 4.8% in Canberra. Regional NSW and Victoria are averaging 4.7%, Regional Queensland is 5.5%, Regional South Australia is 5.7% and Regional Western Australia is 5.9%

Investor activity has fallen 40-50% on 2016/2017 peaks in NSW, Victoria, Queensland and ACT, according to ABS data, so if you’re ready to buy this Spring you won’t have much competition from fellow investors.

You might come up against a strong contingent of first home buyers though, and this competition will only intensify once the new First Home Loan Deposit Scheme begins on January 1.

 

Will Spring bring a bounce to property prices?

Tuesday, August 13, 2019

More new listings are starting to hit the market as the Winter season comes to a close and sellers and agents get ready for the first round of Spring auctions on September 7.

This Spring will be an important test for capital cities and regional markets across Australia.

Firstly, how will recent changes making lending easier impact demand and sale prices?  

APRA has provided some sensible relief to banking guidelines, which had been strangling borrowers and relegating them to the sidelines because they either couldn’t get finance at all or they couldn’t get enough finance to fund their next move.

Will all those buyers held back in 2018 and 2019 try again, leading to more competition? It looks like it, with data from the Australian Bureau of Statistics for June showing a rise in new lending for owner occupied and investment properties for the first time in more than a year. 

Secondly, will the two rate cuts (so far) motivate people to re-engage this Spring, when more homes are available to choose from?

In Sydney and Melbourne, there’s a third test. In June and July, both cities recorded minor price growth for the first time since their peaks in mid-late 2017. Either the tide has turned or we are seeing the impact of a severe lack of stock, with sales volumes about 30% down.

I think the market has settled at its new level and buyers are happily back in buying mode.

The unexpected result in the Federal election sounded the bell for market stabilisation. Buyers feel the bottom has been reached and they aren’t at risk of prices going down further after they buy. 

Equally, sellers can enter the market with greater confidence that there will be genuine interest, if not competition for their property.

Auction clearance rates in Sydney and Melbourne are a great barometer for market health. These declined to around 45% but have now recovered to 70% to 75%.

As we head towards Spring, we are seeing higher buyer interest, but available listings remain low for now. As we see some of that volume return going forward, it appears likely that buyer levels are sufficiently deep to cover any reasonable increase in listings.

With a low interest rate environment remaining indefinitely, I believe that many first home buyers and upgraders will be keen to transact across all city and regional markets.

The highest demand will be for the highest quality. Areas, suburbs, streets and properties that represent the better offerings of a neighbourhood will be in greatest demand this Spring.

Securing these types of homes will cost a bit more but longer-term growth suggests that a higher initial investment will be well and truly rewarded with stronger capital appreciation.

Most people own their property for around 10 years. If you compare the difference between a 5% capital growth rate each year and 8% over the life of a property, you’ll discover that the gap between different properties is likely to widen, not contract.

So, buy quality and focus on location and aspect this Spring.

In major cities, in particular, if you want to maximise your capital growth, look into some of the new infrastructure projects and identify areas that are beneficiaries of road and rail enhancements. Some areas have or will soon become 20-30 minutes closer to the CBD so that will spike values in the next sales cycle.

 

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