Your end of financial year property round up

11th Jul 2018By: John McGrath

Now that we’ve hit the mid-year point, it’s an opportune time to drop a pin in the market and see what’s really going on and how things have changed over the past 12 months.

Of course, the headline this year is the market turn in Sydney and Melbourne.

We are currently well into the cooling process. While some suburban pockets are still recording price rises due to local factors like a particularly desirable location or a lack of supply, both cities overall are slowing down.

Latest numbers from CoreLogic for the year to May show transactions were down -13.5% in Sydney and -12.9% in Melbourne. In the last week of June, Sydney recorded an auction clearance rate of 56% and Melbourne 60%. At this level, we are well and truly back to normal market conditions.

Over FY2018, Sydney home values fell and Melbourne’s rate of growth pretty much grinded to a halt.

Sydney prices softened by -4.5%, which was a significant turnaround on FY2017 when prices rose by 12.2%.

However, these statistics tell us we’re seeing an orderly correction and certainly no dramatic changes. Think about it. In FY2018, Sydney values fell by the equivalent of one-third of the price growth of FY2017 alone.  In the grand scheme of things, it’s not much of a drop.

In Melbourne, prices are not yet in negative territory – they’re up 1% for FY2018 but this rate of growth is well down on FY2017 when prices rose by 13.7%.

Across the country, the results are mixed. Here’s a state and territory comparison.

FY2018 change in property prices

Sydney            -4.5%

Melbourne      +1%

Brisbane          +1.1%

Canberra         +2.3%

Adelaide         +1.1%

Perth               -2.1%

Hobart            +12.7%

Darwin            -7.7%

Source: CoreLogic, July 2018 – house and apartment prices combined

Typically, when Sydney and Melbourne slow down, that’s when other cities start to shine so the national picture will be very interesting over the next 24 months. Which city or cities will become our next big market movers?

Hobart is having a run at the moment but I think Brisbane and South-East Queensland present the best opportunities for value and growth. I still have a lot of confidence in this market, with high levels of interstate migration and more southern investors looking to buy.

No matter where you’re looking to buy in FY2019, you must be conscious of what’s happening in the home lending environment.

Tightening credit policy, especially in expensive markets, is having a real impact on buyer competition. Availability of finance is now becoming a bigger barrier than high house prices for some buyers and we haven’t seen this in the market for a very long time.

Up until now, credit restrictions introduced by APRA since 2014 have successfully targeted investors. Now, owner occupiers are also feeling the pinch as lenders look more closely at debt-to-income ratios and the personal living expenses (rather than a general index) of every buyer to determine serviceability.

It’s very hard in Sydney and Melbourne not to have a high debt-to-income ratio on a property buy, so purchasers in these cities will be hardest hit by these new yardsticks.

It’s never been more important to get your finance organised early and shop around for the best lender. APRA has largely left it up to individual institutions to decide how to tighten their serviceability criteria and mortgage brokers will be able to advise you, based on your financial position, which lenders will be more receptive to a loan application from you.

As Sydney and Melbourne cools, people will start to notice a departure of many agencies and agents from the marketplace. There’s nothing like a cooling market to weed out the poor performers in our industry.

The best agents will navigate the change in market conditions with ease – they’ve been here before and they know what to do.

It’s crucial to be selective with your choice of agent in this market. Anyone can sell a property (especially in a boom) but a good agent should sell it for 10% more because they have better negotiating skills and a greater commitment to doing all the small things that make a difference.

This includes calling every single person who inspects your property for detailed feedback and tailoring a marketing package to suit you rather than a one-size-fits-all.

Looking ahead to FY2019, it’s obvious that Sydney and Melbourne will continue to cool. At some point, prices will settle and we’ll see more normal rates of steady, conservative growth for several years.

Every market presents opportunities and right now first home buyers in Sydney and Melbourne have the advantage.

With interest rates still very low, I recommend that long term home owners and investors shift their focus from capital growth to debt reduction.

It’s a matter of time til interest rates rise, so with the market softening I see FY2019 as a great time to be prudent, pay down debt where you can and in a better position yourself to absorb any rate rises ahead.

Published: Tuesday, July 10, 2018