I have recently been asked by several individuals looking to sell their property whether they have missed the opportunity in the current pricing cycle. To answer this question its important to understand the broader dynamics of the Sydney property market and what drives its performance. Analysis of data, ending Sep 21, details the following returns:
Period YrsReturn121.73%330.90%525.36%757.50%10113.52%
Source: ABS
Over the medium term (3-5 years) and long term (10 years +) Sydney has outperformed all other markets. But what drives such performance?
Returns are a result of demand, employment, access to capital, interest rates and consumer sentiment.
Whilst we saw the number of listings jump by 22% since the beginning of October, the total number of listings remain 23% below the five-year average. Why? Strong buyer demand is absorbing new sales released to the market. Whilst we anticipate a small slow down over the Christmas period the start to 2022 looks bright.
Employment remains strong. The unemployment rate for NSW is currently sitting at 5.4% and the effects of recent lockdowns are rapidly receding. Whilst we anticipate month to month volatility in the short term, as businesses re-establish operations in the new environment, employment growth will see unemployment reach around 4.5% by the end of 2022 with further declines anticipated into 2023. The result wage growth.
In the first week of October, the Australian Prudential Regulation Authority (APRA) increased the minimum interest rate buffer it expects banks to use when assessing the serviceability of home loan applications. APRA has told lenders it expects they will assess new borrowers’ ability to meet their loan repayments at an interest rate that is at least 3.0 percentage points above the loan product rate, a 0.5% increase. The point to note here is that a 0.5% increase is within the bounds of current all-in interest rates. That is, it can be negotiated away.
Interest rates are at historical lows, we believe they will remain there. Talk around the RBA reacting to house pricing with changes in policy appears very premature. Whilst the RBA has recently acknowledged strong rises in house prices it quickly pointed out that growth rates have slowed in recent months. It emphasized that while interest rates are at historical lows, sound lending conditions will provide appropriate buffers for borrowers. Owner-occupier interest rates are in the order of 2.3% to 2.75% with Investor rates ranging from 2.7% to 3.10%.
Finally, consumer sentiment. The Westpac-Melbourne Institute Index of Consumer Sentiment remains in positive territory at 104.3 points, as at December 2021. Consumers are upbeat with a clear majority of optimists nationally. Views on family finance remain positive and remain above the long-run average. Views on economic conditions also remain positive.
Post a stellar run in 2021 we anticipate that house pricing will moderate over 2022. We expect that the market will continue to run into 2022 with mid to high single-digit growth. With the majority of price increases likely to occur during the first half of the year. Sellers haven’t missed the boat but the skipper is preparing for sail!
If you are thinking of selling feel free to email me john@willsproperty.com.au
John Wills FAPI
Principal
Wills Property
+61 467 443 838