Opportunities, challenges and why this ‘pocket’ of the property market will pass￼
The property market has a unique ability to reflect the state of our lives back to us. The communities in which we live and love, the lifestyles we lead, the challenges we face and the opportunities we can seize. It does so in economic terms of course – with the market reflecting the current pressures of inflation and rising interest rates – but it does so in emotional terms, too.
The property market has a history of mirroring our collective emotions – our fears, our ambitions and our dreams – whether that’s a desire to fulfil your own ‘Great Australian Dream’ or selling the family home in favour of a tree change, as many did following the COVID-19 pandemic.
When we consider these domestic economic concerns and the fiscal and social uncertainty that any Federal Election brings with it, combined with global issues including the disruption from the pandemic, geopolitical tensions, and the war in Ukraine, it’s not surprising that the Sydney property market is reflecting a sense of real uncertainty and instability about the future.
However, there’s reason to stay hopeful and not only because I believe it’s important to maintain confidence in the property sector – Australia’s biggest industry and employer. This current ‘pocket’ the market’s in is reflecting the unfortunate combination of these local and global challenges coming together at the one time. We’re not sure how long it will last, but just like our emotions, it will peak and pass. After all, continual change is one of the only guarantees in life.
So what will drive this change? There are four key factors I believe will have influence over the next 12 months and where opportunities will lie in our great industry.
1) The newly elected Labor Government:
Regardless of your voting preference in the recent Federal Election, the incoming Albanese Government’s plan to address critical issues relating to the housing market is positive. This includes its ‘Help to Buy’ scheme which targets first-home buyers by cutting the cost of buying a home by up to 40% via an equity contribution from the Federal Government. The National Housing Supply and Affordability Council will help ensure the Government ‘plays a leadership role in increasing housing supply and improving housing affordability’, and The National Housing and Homelessness Plan will identify reforms ‘needed to make it easier for Australians to buy a home, easier to rent, and put a roof over the heads of more homeless Australians.’ I’m pleased to see that these challenges will be addressed, including rental undersupply, which we continue to witness first-hand in the key inner-Sydney markets that BresicWhitney operates in. These are critical issues for the Government to tackle and would have been for any incoming party.
2) Interest rates key to performance:
While Labor’s efforts will aim to bring meaningful and much needed change, interest rates are likely to have the largest influence on the market, at least within the next six to 12 months.
The fact that it was the first time since 2007 that interest rates rose during a Federal Election campaign has no doubt compounded the concerns that first-home buyers and young Australians are grappling with, and further reflects the wider changes at play that generations haven’t faced before.
The sharpness and speed at which interest rates rise will be of importance and will either help or hinder the market’s ability to process and prepare for these changes. While we know that the May cash rate rise of 25 basis points to 0.35% from 0.1% was the start of a longer journey, gradual rate rises would help ease Australians into this new territory – even if the RBA’s view is that it’s appropriate ‘to start the process of normalising monetary conditions.’
3) The ‘Yin and Yang’ of Supply and Demand:
The Sydney market is in the process of rebalancing itself, following the heated pocket of price rises, undersupply and demand across all grades that was the hallmark of previous years, right across Sydney.
Buyer FOMO (‘Fear of Missing Out’) has been swapped for a newfound sense of discernment and it’s manifesting a highly considered approach to buying. Properties that would have been aggressively bid for previously are now, at times, registering only a modest group of buyers that are also aware of potential price reductions should the property be on the market longer than anticipated.
This is reflected in auction clearance rates, with Domain reporting it at 59% for Sydney, down from 71% this time last year. Our BresicWhitney sales reports are also reflecting this trend, recording a 76% clearance rate for the month of April, down from 81% in February 2022. Properties at the higher end of the market are being scrutinised more closely too, with buyers thinking more holistically about whether the home will allow them to thrive – financially, emotionally, and socially.
4) Livability factor:
If there’s one factor that shows just what a mirror the property industry is to our lives, it’s this. Homes that provide a compelling lifestyle proposition will always sell and lease well, whether that’s in inner-Sydney or regional New South Wales. Places where you feel at home not just within your four walls, but within your community, are undeniably better at weathering the storm than those that don’t.
Many clients we’re working with continue to express just how critical lifestyle is to them in the search for their home. This ranges from large family homes with space to raise a family, to apartments that nurture flexible working arrangements, to terrace houses that embody history and character. Of course, access to transport, retail amenities and open space remain as important as ever. While there are clear challenges that need to be addressed, this pocket of uncertainty and instability will pass. The Labor Government’s plan to address key issues will make important inroads, and in the meantime, there’s reason to stay positive about property. As one of the great mirrors of our lives, I look forward to it reflecting more of our collective dreams and ambitions, and less of our fears.