More houses needed
A gradual flattening of activity in the Australian property market over the past few weeks indicates to me that we may be entering a more favourable phase of sustainable and long-term growth. This is a positive scenario for both buyers and sellers alike.
National clearance rates were recently 68.6%, up from 67.8% the week prior, and have generally been sitting at a similar level over the past four to five weeks. Sydney was the nation’s top performer, recording 72% and this was followed by Melbourne at 71.7%.
Rental prices didn’t see much movement in Sydney or Melbourne, with both remaining flat around the 12% and 8% mark, respectively. Perth, on the other hand, has climbed over 20.9% over the past two years, and with Sydney and Melbourne, combines to make a national average of 13.7%.
Vacancy rates also haven’t moved a great deal in Sydney, sitting at 2.4%, however Melbourne recorded 3.2%, up from 2% last week, while Perth jumped to 7% after steadily climbing week-on-week for the past month. These three capitals combine to reach an average of 4.2%.
Turning to homes coming onto the market, these figures have been increasing over the past five weeks in a row, including a 1.7% uptick just over the past week. This growth is not occurring uniformly across the market however. It is the result of a lack of stock in certain suburbs, which is driving high activity levels in these specific locations, and distorting the overall figures. It’s in these locations where we are witnessing pockets of overheating and overpriced properties, figures which tend to affect median house prices and create a false picture of how the market is truly performing.
Ants around a spot of honey
Despite all the recent talk about a runaway investment market, it’s still my belief that there is a massive undersupply of stock in some of our capital cities. This is why ongoing debate calling to contain the activity of an “overheated” investment segment is, in my opinion, misguided. These high levels of activity are only occurring where limited supply is causing investors to swarm like ants around the only available spot of honey. However, there are many regions in which the supply issue is simply non-existent, such as in rural Australia, where there is still plenty of stock available.
We’ve seen a number of instances where homes are being put on the market at $10 million and then they are being sold for $15 million in certain market hot spots. It’s these types of one-off transactions which are driving up median selling prices overall and causing the outcry around overpricing. However, if we look back again to clearance rates, for a market to even be considered close to hitting a “boom” phase, we would need to be seeing auction clearance rates sitting in the 80% range consistently, week on week, and this has simply not been the case. In fact, we have reached 80% nationally in just one instance over the entire year.
Freeing up supply
This common misconception that high levels of investment activity are occurring market-wide has heightened discussion around market-wide solutions. This includes the potential use of macro prudential tools by the banking regulator, the Australian Prudential Regulation Authority (APRA), and the Reserve Bank of Australia (RBA). These tools are generally designed to impart tougher rules on banks regarding their lending.
One such tool includes placing a ‘speed limit’ on lending by limiting loan-to-value-ratios to 80%, and has been a tactic implemented recently in the New Zealand market. However, it’s my experience that we already have some level of macro prudential tools in place here in Australia, which are already making it difficult to borrow money in today’s market, in the form of responsible lending obligations. These obligations include the need to closely assess and verify a consumer’s financial position, in order to ensure only suitable loans are being written to consumers, and can sometimes involve demonstrating an exact repayment plan on loans.
A far more effective solution would simply be to free up supply in those areas experiencing high demand as a result of a significant lack of stock. This could be achieved through actions taken to reduce the red and green tape, which impedes the smooth and timely flow of developments in these areas.
Unite in pink
Finally, some of you may have noticed Century 21 agents out and about over the past month, donning bright pink jackets in place of our usual famous gold jackets as part of our “Unite in Pink” initiative to raise funds for the Cancer Council’s Pink Ribbon. I’d like to thank each and every person involved in the initiative for their tireless energy and support of such an invaluable cause.
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