It doesn’t take a genius to understand the high costs of buying in Sydney. After all, the median house price of over a million is now a pretty well-known figure. But what does the future hold? What are current buyers and sellers doing? What does the Sydney property market say?
McCarthy Group’s time-tested and core approach to property investment is ‘buy and hold’ investing. This is where an investor will hold a property for ten years or more, ride out several boom-and-bust fluctuations in the market, and benefit from growth arising from the long term tangible growth in an area.
This is a far cry from speculative investing, which relies on turning a profit from the short term and often emotional phenomena of the property markets. Although profit can be drawn from both approaches, market speculating is often said to be an unpredictable and unsustainable game, in which few people succeed long term.
Speculators are intensely interested in property booms, as it determines their profits and capital growth. For the long term investor, this is not so. They perceive short term ups and downs as being just background noise amongst long term trends, like waves in a tidal ocean.
Nevertheless, to answer our questions we need to take a few steps back, and start with the final question “What does the Sydney property market say?”
Dr Andrew Wilson, senior economist at Domain gave this telling quote in September:
“Sydney is plunging … September has seen the lowest spring clearance rates in three years and it’s no spike, it’s consistent. We may be looking at a clearance rate below 70 per cent before year’s end. That could even happen at next weekend’s Super Saturday”.
The Core Logic-RP Data released on the 2nd of November has put the Sydney Clearance rate at 63.5%. So only 63.5% of properties for sale were actually sold, compared to the 75.6% from last year.
But what does that mean?
If clearance rates are low, it is because there is a lack of demand. As Dr Wilson has suggested “The price growth that was recorded this year and over the last two years was unsustainable”. Couple high prices with more and more sellers putting houses up for sale, and you have buyers with more choice and the same amount of money, looking for the best possible deals.
While I’m on that, let me fix up our second question, ‘What are current buyers and sellers doing?’
Clearly, buyers are not doing a lot of buying. A clearance rate of 63.5% is low, but it would not truly be a buyer’s market until that rate falls even further, possibly below 50%. If that happened, then a slump may indeed be in the works.
Some speculators are trying to get rid of their properties before a crash happens. Others are trying to copy speculators from last year, who sold during this season and made massive gains. Unfortunately for this group, the market is not in anywhere near the same condition as it was last year.
All in all, the tables are starting to turn. Sellers are becoming nervous, while buyers are holding off until prices become more reasonable.
Now let’s move on to the final question, ‘What does the future hold?’
The short answer is, who knows? The short term future is unpredictable in every investment market, property being no exception. In the long term, the short term ups and downs quickly become irrelevant. We would suggest however, that the slow down marks the beginning of a slump within the region. There aren’t enough people buying, which means that prices need to drop to give consumers the incentive to purchase.
The time frame for this to happen is totally up in the air, as there are many other factors influencing when a slump will actually occur. However we would suggest keeping a very firm eye on the market for when that clearance rate drops lower, and most importantly for when prices start to slide.
After all, the best time to buy is at the bottom of a slump.
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CEO McCarthy Group