John McGrath - When Will The Market Craziness End?
My feeling is the market is going to remain solid for the rest of this year. The pandemic sparked many new trends and thousands of Australians are rearranging their lives as a result.
All of this activity is yet to fully play out in the property market, so I think we’ve got at least six more months of market strength before things start to settle in 2022.
People are still in the process of leaving the big cities for regional areas because they can now work from home. There’s also plenty of families out there looking to upsize while interest rates are so low.
First home buyers are still active and investors are returning with renewed confidence to take advantage of the plethora of cash flow positive opportunities in both city and regional markets.
People making a lifestyle change away from Australia’s most expensive city are having a particularly strong impact in other markets.
Last week, I was on the Gold Coast for the Australasian Real Estate Conference (AREC) that I founded 23 years ago. The effect of Sydney money on this market is evident. Buyers who have just sold for $5 million in Sydney can bid beyond the budgets of locals, which has led to a re-rating in values.
Low interest rates are clearly a major driver but so is the shortage of listings. Those things are not unique, we’ve seen them before. There is some underlying increase in values, without a doubt, but on top of that are some crazy results happening that are likely to come out of the market by 2022.
Homes going for hundreds of thousands above reserve every weekend is just unsustainable. The question is, what’s the point at which it will turn and by how much is it going to come back by?
Buyers shouldn’t worry that they’re never going to be able to get in. Markets go up but they also come back. I’ve been through about six or seven cycles now over 40 years and inevitably, there comes a point of pause and some level of correction.
I think the market will take a breather by early 2022. I don’t think it’s going to go back 20% - I wouldn’t be banking on that, but if what you’re after is just out of your price range then maybe you have to be a little patient.
My advice to buyers is to focus on your budget, not the market. Don’t overstretch yourself because at the end of the day there will be a home that suits. Whether it’s the exact one you want, or you have to change location or compromise somehow.
In the meantime, this is a purple patch for sellers. We’re in the sort of market where most properties, even those with compromises, are going to sell well. If you’ve got something unique, you might be one of the lucky ones who get hundreds of thousands of dollars more than expected.
I read a story a week or so ago about an 80-year-old vendor who had to sell his investment property because COVID-19 killed his business of 30 years.
It was a fibro house on a nice level block and it sold for $920,000 above reserve. The sale price of $1.81 million was four times what he paid almost 10 years ago for this modest little house in western Sydney.
He was quoted in The Sunday Telegraph saying: “The auction has changed everything. With this price, I don’t have to worry for the rest of my life.”
This is what property can do for you. Imagine if this gentleman never had the foresight to invest. He’d be in a completely different position at a time in his life when he should be smelling the roses.
After things settle down a bit next year, we’ll still see a healthy market but not so many of these crazy prices. So, if you’re an owner considering selling, then I’d look to do it this year if you can - especially if you’re downsizing or trading out of a high value market into a less expensive one.
The views expressed in this article are an opinion only and readers should rely on their independent advice in relation to such matters.
This article originally appeared in The Real Estate Conversation (June 7, 2021)
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