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Do you think the property market will burst in 2015?

sydney

One of the most real estate obsessed cities in the world

This is a question real estate agents get asked a lot as we head into the final month of selling. It’s a dangerous question because really we don’t know the answer and no one else does either.

According to SQM Research, the median house price in Sydney’s inner fringe has now surpassed $1million. To many that seems absurd, we dreamed years ago about our homes being worth a million dollars and somehow our dreams have become reality, even if that millionaire reality is a far from palatial home we imagined many years ago.

SOLD $1,280,000 - 3/5 McDonald St, Cronulla

SOLD $1,280,000 – 3/5 McDonald St, Cronulla

In Cronulla it is now very difficult to find an entry level house on a small block of land for $1.3mil.  If you are thinking of buying an apartment in Cronulla, it is just as difficult to find something under a million dollars. Last month a 2 bedroom apartment with superb ocean views and only a single garage sold for $1.4mil.

If you are not in the market already, how do you get into a market where you have to be a millionaire to buy a basic home? Parents are panicking for their children, 30 and 40 year olds are becoming first home buyers.

Should we take the plunge in November 2014 or should we wait and see till February 2015?

SOLD $1,118,000 16 Targo Rd, Beverley Park

SOLD $1,118,000 – 16 Targo Rd, Beverley Park

This is the dilemma now facing many buyers. Sure, interest rates are low but when you have to borrow the bulk of a $1 million dollars plus stamp duty then the mortgage you end up with is not cheap.

The Reserve Bank has been recently warning us to stop getting carried away, to stop borrowing too much money, but so far this has not had too much of an effect on an insatiable Sydney market.

Anything can happen as shown with the Global Financial Crisis and we now live in a very interconnected world, where something that happens in another country, on the other side of the world can affect us here very quickly.

SOLD $1,570,000 - 5 Cook St, Caringbah South

SOLD $1,570,000 – 5 Cook St, Caringbah South

Unfortunately I don’t have a crystal ball but I did win the Melbourne Cup this year so if I had to have a punt on which way the property market was going to go next year I would say upwards, but not at the same intensity as this year.

NSW is now the economic locomotive of Australia and Sydney the most desirable city to live in. Property sales off the plan are booming which means the residential construction industry will also stay robust. Also the NSW government has embarked on huge infrastructure projects which will support thousands of jobs into the medium term.

A steady increase, then a plateau is my guess but full disclaimer here, I have really no idea, just 18 years of being a real estate agent in one of the most real estate obsessed cities in the world…

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Shortage of Properties For Sale, Winter 2013

The Reserve Bank meets today and the consensus is that that there will be a rate cut of .25% and with a Federal Election date now booked in this is good news for buyers. Yes I say buyers! Not since Winter 2003 have I seen a shortage of listings like this winter, where buyers come through an open house and eye their competition, recognising other buyers as bidders at the previous week’s auction, both being outbid by someone who went the extra $10,000.

In the current market buyers have to be ready to pounce, think twice and you will miss out. Mind you with fixed interest rates below 5%, it is a great time to be buying, there just needs to be more on the market for all the buyers currently looking.

Hopefully with the certainty of an election date and spring around the corner more people will decide to sell in the coming months and current buyers will be unpacked and moved in for Christmas 2013 in their new home.

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Who sells their property in winter?

Smart people do!
Well at least this winter, if you do decide to sell, you would be considered a savvy vendor.

Winter weather has been relatively mild with few rain days, so most properties are still very presentable. Traditionally people wait till Spring, but I stress traditionally because now it’s not just the weather that affects the sale price.I would argue that supply and demand is one of the major influences on property prices. In recent months in the Sutherland Shire and across Sydney open house numbers have dramatically increased, days on the market have significantly reduced and prices are on the up, up, up!

If you are thinking of selling, I ask you this question, do you think you will get a better price in spring when you could be competing with lots of properties in a similar price range but the flowers are blooming in your yard? Or do you think you will get a better price in winter, when there are just a few similar houses on the market and an abundance of buyers clammering for the same home, your home?!

And just to throw a spanner in the works this spring, we have a federal election. Every time there is an election, the few weeks either side of that date, (for whatever reason) buyer activity drops off.

No year is ever the same with economic and political circumstances affecting the supply and demand of the real estate market, but this year, most agents are seeing a shortage of good properties to sell and very competitive bidding from buyers.

HSBC this week dropped their 2 year fixed rate to 4.59%! Who would have thought a fixed rate under 5% was possible even 12 months ago! It is now cheaper to have a mortgage than pay rent for a lot of people in a lot of suburbs in Sydney. This will only encourage more buyers into the market this winter.

So if you are considering making a move this year, I would encourage you to do it right now!

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Real Estate Update – March 2013

The year has started with some fast and furious selling at Beach & Bay Realty, both auction campaigns in February were sold prior to auction over only 2 weeks and a private treaty sale went through in 5 days!

We seem to have started the year with more buyer inspections and a little more confidence than last year, this is reflective in the auction clearance rates Sydneywide for Feb and March which are much improved on 2012. We will continue to track the auction results in our area of expertise throughout 2013 so please join our e-newsletter for weekly updates of auction sales.

Breeze @ 19-21 Gerrale St, Cronulla

While interest rates are relatively low, we should continue to see a steady real estate market in the Sutherland Shire. It’s been a while since you could secure a fixed interest loan for 2 years for 4.99%!

We are currently marketing Breeze @ 19 -21 Gerrale St, Cronulla, Sammut Developments latest luxury project in Cronulla. Off the plan sales have commenced and for anyone wanting to secure an apartment in this development the opportunity is there now to put a deposit down with 2 years to save the rest!

Happy selling and happy buying in 2013.

SOLD PRIOR TO AUCTION - 15 Seaforth Ave, Woolooware

SOLD PRIOR TO AUCTION - 12 Lowana Ave, Kirrawee

SOLD - 1/78-82 Kingsway, Cronulla

 

Apartment 102 - Breeze

Apartment 203 - Breeze

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2012 Property Selling Countdown Begins

Tomorrow it will be exactly 10 weeks till Christmas. For prospective sellers this means getting your property on the market now! This will give you 4 weeks marketing and then the standard 6 weeks settlement period. Often around this time settlements are changed, shortened or lengthened to allow for the Christmas/New Year period when solicitors close down. Purchasers will need to exchange on a property by end of October to ensure you can enjoy the Christmas festivities in your new home, otherwise settlements are using scheduled mid to late January.

As the days get warmer and we head into summer, it is the perfect time to sell your home. In November it is expected we will get another RBA interest rate cut, and if the banks pass this on buyers will have an extra incentive to buy this spring/summer.

Beach & Bay has a number of new listings and we look forward to launching them over the next week.

Happy selling and happy buying!

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Early Christmas Present for Mortgage Holders

Mortgage holders on flexible interest rates and anyone thinking of buying real estate have been given an early Christmas present in the form of 2 interest rate cuts by the Reserve Bank of Australia.

It has been a very tough year for property. Floods, tsunamis, earthquakes, 3 new taxes (flood, mining and carbon tax), sovereign debt crises and even a serious US debt limit crisis not yet resolved have hit confidence worldwide. In Australia, consumers have turned to savers and retailers, house builders, inbound tourism and especially manufacturing are all affected.

2012 should see an improved real estate market in NSW. There is pent up demand from population growth and supply of new housing is at record lows. In Spain and Ireland there are millions of empty new houses. We can sell any house if the price is right!

Merry Christmas and a Happy New Year!

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Why Interest Rates Should Not Go Up In June

I am one month off celebrating the completion of 10 years in business (Beach & Bay Realty). As I look towards the next decade, I wonder what is in store. I have seen a lot of changes over the 10 years in the Cronulla area, many real estate agencies, big and small, have come and gone, but not just real estate, Cronulla Mall is a constant revolving door of new and reborn restaurants, cafes and retail shops.

The government says Australia has come out of the Global Financial Crisis relatively unscathed. The economy, they say, is doing fabulous, so much better than so many of our counterparts ie USA, and many European countries.

So why then are we as stressed as our American counterparts, why are Australians under so much financial stress, why are we spending less, why are mortgage foreclosures on the rise, business confidence down, new housing figures down, house prices down and so many businesses closing?

I am no economist but I know this:

Sydney has never been so expensive to live in. I am a bit of a traveller as you know and it always amazes me that when I am overseas in some fantastic city whether it be New York or Florence, both supposed to be more expensive than Sydney, my $100 goes so much further than $100 in Sydney (all currencies being equal for this exercise).

Food and day to day living expenses have never been so high. Even though the Aussie dollar is high, nothing seems to go down in price, except online shopping of course but certainly not petrol! If you are not responsible for the grocery shopping in your household I suggest you take a $100 and go to the supermarket and see how much you can buy for $100, forget the trollery, grab the carry basket!

Running a business has never been so difficult, largely due to the costs involved and taxes. Even in the inner city, well known, established restaurants are closing due to rising costs and reduced revenue as customers dine on restrained budgets (think main, no entree, byo).

Sydneysiders, and I expect most Australians have never been so stressed.

So why are they saying interest rates must go up next month?

Because they are politicians who don’t live in the real world. I challenge Wayne Swan to be a real person for a week and see how it feels!

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What are the odds of an interest rate rise before the Melbourne Cup?

Time is running out fast for property owners to fix their variable mortgage rates before the RBA increases the cash rate next week by 0.25% and the big four put another 0.25% on top of that.

I should mention at the outset that I have fixed my rates this week.

Variable rates are in the high 6% and the 3 year fixed rate is less than 7.5%. For many there is only 0.5% difference between fixed and variable. So if variable rates do go up next week by half a percent, fixed and variable rates will virtually be equal. Of course, the banks may well move fixed rates up as well, giving borrowers an extra incentive to move quickly i.e. before Melbourne Cup day, or three business days from now.

You have been warned. Jobs growth is still strong and inflation figures out yesterday showed that annual inflation is still running at 2.8% pa or close to the RBA’s limit. Furthermore, the RBA knows that it is carrying the entire burden of reigning in inflation because the State and Federal governments are in such political paralysis that no tax rises (e.g. carbon tax or minerals tax) will get through any time soon. Finally, all bank CEOs have been saying how they need to raise rates.

On balance I think rates will rise 0.5% by mid November with the RBA leading the way with a 0.25% cash rate rise on Melbourne Cup day. If I am right variable rates will be about the same as my fixed rates. If I am wrong then the RBA probably will not be able to raise rates until February, which is too long to wait. I think the RBA will move on Tuesday and the commercial banks soon after.

With Christmas around the corner and no RBA meeting in January, odds are we will get a rate rise. Happy Melbourne Cup, hope you pick a winner!

Please note, the above comments are my personal views so please check with your financial advisor before moving on my suggestions.

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Interest Rates: will they hold?

In an earlier Blog (5/8/10) I predicted the RBA would not lift its cash rate until at least November 2010. A number of recent developments have reinforced my prediction, and I still hold it to be true.

Some of these developments that will weigh in on the RBA’s decision to raise interest rates include:

  • new prudential capital rules for banks
  • inflation trends
  • the strength of the Australian Dollar (AUD)
  • housing starts
  • rain & excellent east coast crops
  • wages pressures
  • demand for commodities and its parallel
  • demand from China

Of the above factors, I think a wages outbreak is becoming the most critical factor. Labour costs rose 4% in the year to 31/8/10, up from 3.7% in July 2010 according to NAB’s monthly survey of business conditions.

CBA staff have just won a 4% rise and mining salaries have jumped 7.1%. If this trend continues and wages persist to break out, the RBA will have no choice but to increase rates. This is because wages flow through to almost everything that contributes to the inflation index. If inflation trends over 3% in the September quarter (not announced till October) then rates will surely rise at the RBA’s November board meeting.

On the positive side, the AUD is becoming stronger by the day and finally heading towards parity with the US Dollar (USD). Our imports are becoming cheaper, exemplified by the decrease in petrol prices (even though world oil prices are going up). Good rains in the eastern states should see stellar crop output, which will increase exports and subsequently the AUD.

Demand for our commodities is again booming and China has taken steps (which appear to be working) to avoid excess demand. On the supply side, the Federal Reserve Bank is still talking of printing money to buy USD$1trillion worth of bonds. A percentage of that money will find its way to Australia through private equity funds (to buy Fosters, Q-Rail, Integral Energy and any number of Australian assets) which will only serve to drive the AUD further up.

One of our biggest employers in the residential construction industry is not likely to be exacerbating inflation because the HIA expects housing starts to only increase by 2% this financial year to 162,000. This is against a demand for dwellings estimated to be 192,000. This augurs well for property sales and prices.

Finally, it was thought that the new international rules for banks to hold more prudential capital might mean the Australian banks would have to raise rates independently of the RBA cash rate. Fortunately, they already hold more reserves than will be required under the new Basel rules. The only unknown is the wholesale funding costs of the banks. As an outsider it is very hard to gauge these costs. At best the banks only make 1% margin on their loans so there is not a lot of room for error. It would be a brave bank, however, that would unilaterally raise rates without any rate rise from the RBA they could latch onto. I don’t think they will. Politicians will go after them especially while all the other factors (except wage rises) keep a lid on a possible rate hike till November. That would give us 6 months respite from interest rates – enough time to reduce exposure, or at least use the savings to repay mortgages that bit earlier.

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Interest Rates On The Rise

I don’t think the RBA has taken enough consideration of the international implications of this rate rise.

We are a trillion US dollar economy compared with the US 14 trillion USD economy and the USD 60 trillion world economy. Our country is only a speck internationally, traditionally only 2% of turnover for global giants like Nestle, Unilever & Shell. However, our interest rates are internationally high by comparison. So where is a lot of hot money going to flow, if not into the AUD? If the RBA continues along this path whilst the huge US economy keeps deflating and the USD keeps falling, our currency will reach parity with the USD in very short order.

This could be fatal for our exports, especially in the manufacturing sector which will become uncompetitive with imports if they haven’t already become so.

Since I recently predicted, wrongly as it turns out, that US rates would rise before Australia’s, the US economy has continued to weaken. Unemployment has risen to 9.8%. President Obama’s health care reform is stalled, Afghanistan is a quagmire, Chicago lost the 2016 Olympics to Rio, gold continues to break records (because those in the know have lost faith in the USD).

So, whilst US interest may not have risen for domestic reasons, investors will vote with their feet and search for a currency that is rising.

What better place to put their money than in Australia, which is politically stable, supplies the world with resources and now has one of the highest interest rates in the world (but lower than India and Brazil), and a rising dollar.

The upward pressure on the AUD will rise each time the RBA ratchets up the cash rate. Inevitably more money will flow into the AUD pushing it rapidly towards 1AUD = 1USD. As the Aussie dollar buys more US dollars, imports get cheaper, outbound tourism will boom and inflation may abate, but….on the other hand, exports, import/ competing manufacturing, inbound tourism, property and jobs will all suffer.

Is inflation that much of a problem that this should be allowed to occur?

Hopefully, at least the Federal Government will maintain its fiscal stimulus. In any event, Mr Turnbull, which schools precisely, would you deny their once in a generation opportunity for a new (“freebie”) multi purpose hall?

Whilst I may have been wrong in predicting that Australian interest rates would not rise until they do in the US, the consequences of the rise, yesterday, will seriously hurt sectors that do not need further shocks.

Another consequence of the tightening of monetary policy will be that the Federal Government will have to bring in a tough Federal Budget next year if it is to avoid unnecessary rate rises now that Mr Stevens has put his hand on the interest rate trigger. Will the Federal Government want to have a tough Budget before the next election? I don’t think so. No wonder it’s looking for an excuse for a double dissolution. What better time then when the Liberals and Nationals are imploding.

Henk Emans, B. Comm, MBA, LREA

Interest Rate Rise

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