So does that mean the market decline is over?
Recent data released by Core Logic (Core Logic News 3rd June 2019) reveals that whilst properties listed for auction were down 27% week on week compared to the same time last year, clearance rates were up from 54.1% to 61.5% compared to the same week in 2018.
So does a one week increase in auction clearance rates across the country give cause for celebration that the property market will reach its floor and the property price declines will soon cease?
In isolation, the obvious answer is no. But when you take into account a number of factors, you could very well crystal ball the future and say that property prices will turn the corner sooner than expected. Last year, it was predicted that the property market was going to fall month on month the whole of 2019. However, we think the most likely outcome is that the market will cease its decline later this year and here’s why.
There are a number of factors that play into what is referred to as ‘market sentiment’ that translates into buyer behaviour in relation to the property market. We have seen how the market peaked in late September 2017 after the five or more years of significant price increases. Since then Sydney prices have reduced by nearly 15% and Melbourne a little over 10%.
Clearly the Federal election was welcomed on a number of fronts including home buyers and property investors who saw the threat of changes to negative gearing as a reason to hold off making a purchase decision. The idea of delaying a purchase decision due to uncertainty is not new and we would expect that now that uncertainty has been removed with the election of the Coalition Government in Canberra, the uncertainty will disappear too. This has been reflected in several lenders new loan application data which in the past weeks are up on previous months.
We have also seen APRA relax lenders interest rate floor qualifying rate allowing lenders to set their own minimum rate so long as they apply a minimum buffer of 2.5%. This will have the effect of increasing the maximum borrowing capacity of some borrowers. With more money in their wallets to spend, and the availability of stock remaining restricted, this will ultimately add to the pressure on prices.
Another factor playing on the market is the fact that in Sydney and Melbourne for five consecutive years, the number of new residents arriving in each city has been more than 100,000 each year. When you combine this with the fact that building approval pipeline is down between 30% and 40% in both of these cities, the fact is any excess stock that was talked of last year, will be soaked up by the first half of 2020 leading to stock shortfall in the second half of the year. As the Australian CEO of Goldman Sachs recently stated, “Developers have stopped developing because of what has been going on with the banks, so if you look forward 18 months, there is virtually no supply”.
So when you combine a decreased amount of supply with a constant level of demand from new residents in the major capital cities, the pressure can only cause prices to go one way, and that will ultimately be up.
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