Caution Ahead: Transition from Vendor to Buyer’s Market

Bishwas Bhattarai, Senior Lending Manager
M. Comm. (Banking & Finance) UNSW, Dip. Fin. Plan.

06 June 2017

Sydney, for the first time in the last 3 years has seen the negative quarter with the house price. Experts are already calling out this is well and truly the end of property boom for this time. This quarter decline of 1.7% from Core Logic is showing the trend is the first in the last 16 quarters.

There is no doubt the housing affordability is in peak in both the major capital city Sydney and Melbourne as with recently published core logic report showing clearly most First home buyers believe buying the property is now out of reach. This also comes amid the fresh claim that Australian economy may be heading to recession after 103 quarters of record breaking growth.
Many believe the key drivers have been the low home rate as a result of the Reserve Bank of Australia’s low cash rate policy. The market however has been filled mostly with the investor and foreign buyers that however, has seen changes in the last 12-18 months with a lot of first home buyers settling on off the plan purchase. Most, agree this have been more of “fear of missing out” forcing to take big mortgage rather.
Given, there is a lot of speculation if the Australian economy is to go in negative growth again this quarter could lead to technical recession. In economic terms 2 consecutive growth are termed as recession. Business sentiment is floating at low level along with other 2 states namely Western Australia and Northern Territory currently seeing the negative property growth dragging the economy down. Given, all this it is likely Reserve Bank will keep the cash rate at 1.50%. And probably, will stay down here till the end of year even the further speculation RBA may find the need to even lower this early next year to balance the economy. Amid, with this in the last few weeks the fixed rate home loans for 2and 3 years has seen more traction and been the flavor of the month. We probably will see more competition in between major banks between fixed 2 and 3 years terms loan. Currently, most are offering both of these product for both investment and principle place residence under 4% on principle repayment basis.
Within Sydney and Melbourne last Saturday both and domain has recorded the auction clearance rate over 70%. The number of auction has been lowest then the previous weeks noting this is the quietest time of the year. However, I have visited 7 auctions on Saturday and despite the string clearance record it speaks the different market. Good presence, but not enough buyers with only 1 or 2 bidders present on each property, low confidences 3 out of 7 auctions were passed. What we are seeing is market transitioning from Vendor’s to Buyers’ Market. Buyer’s Market is driver by buyers Vendor may not be getting the price once hoped, increased vendor discounting struggling to get the number of buyers to motivate to big or put an offer. Surely, estate agent has the work cut out and there is no free rides demanding them to work hard for money.
It will be interesting to see how the first home buyers will place themselves in the market after 1 July 2017, arming themselves with stamp duty exemption for purchase under $650 000 the scope of property. Clearly, Sydney is currently experience less stock of existing property on the market and dominated by off the plan and newly built property. This is likely to cause a upward pressure for existing property within first home buyers reach.
In summary, RBA is set to keep the Cash rate on hold. Most likely to see more competition between 2 and 3 years fixed rate home loan between the financial providers. And, shifting property market from Vendor to Buyers’ market.