A glut of unsold homes in Sydney and Melbourne is forcing sellers to discount their asking prices and creating bargains for buyers willing to take the risk of prices falling further, as the largest housing market correction in at least 40 years accelerates.
Clearance rates in Sydney have fallen below 50 per cent for the first time since the market was shut down by the pandemic. Before that, it was in the latter part of the downturn between 2017 to mid-2019 when clearances rates last went below that level.
Vendors’ discounts are rising again, particularly in Sydney where they have averaged more than 4 per cent in the past three months. Sellers are getting cold feet on plans to take their homes to the market. New listings in Sydney have fallen 1.5 per cent on a year ago, while in Melbourne, they are down 17.6 per cent.
Nevertheless, total listings in both cities have risen, a clear sign that old stock is languishing on the market. The correction is yet to arrive in the other mainland capitals, where sellers are still bringing fresh stock to the market than a year earlier.
These statistics are the soundtrack for a housing market that is rapidly crunching its gears, heading into a downturn that could send prices down between 15 per cent to 20 per cent by the end of next year. If that forecast is realised, it will dwarf the 8.3 per cent drop in values between 2017 and 2019 or the 8.1 per cent downturn between 1982 and 1983.
“There is nothing that would suggest we’re about to see a shift between the buyer and seller balance. It’s still pointing to the fact that we are seeing buyers becoming more empowered as we see [total] listings rising in Sydney and Melbourne,” said CoreLogic research director Tim Lawless.
“The downward seasonal trend is amplified by the fact that sellers, or homeowners, are increasingly unwilling to test the market when selling conditions are becoming more challenging.”
Prices fell 1.6 per cent in Sydney in June and by 1.1 per cent in Melbourne. Incremental gains were made in the other capital cities, except Hobart where they also dipped.
Driving the historic downturn is an equally aggressive series of interest rate rises, with the market pricing in a peak cash rate of around 3.5 per cent by May next year. That would make it the fastest tightening cycle in almost two decades, a serious brake to a housing market which has become ever more reliant on debt. And as Jarden chief economist Carlos Cacho points out, the impact of rising mortgage costs on borrowers is proportionately greater when it is applied at the lower interest rate levels.
“We’re probably seeing an acceleration of falls, a bit faster than we expected,” Mr Cacho said.
“The buyer sentiment and the urgency that has been in the market in the past year has evaporated. There’s much more a feeling from buyers that they have time on their side and they can wait for the right property to come up.
“No one wants to be that person who overpaid and was down 10 per cent in their first year.”
Fear of overpaying
As this year’s FOOP – the fear of overpaying – replaces last year’s FOMO – the fear of missing out – bargain hunters are also reining back their home borrowing.
Total owner-occupier loan volumes have fallen for the past four months from their levels a year ago – for first home buyers the run of declines is now eight months long – and even investor loan growth, which in May last year was double its monthly value 12 months earlier, is now slowing.
Sydney buyers’ agent John Carew points out that for buyers of lower-priced property, who need to borrow closer to the 80-90 per cent of their purchase prices, rising interest rates will hit harder.
“It certainly does impact the sentiment of the market and has a disproportionate impact on the people leveraging closer towards the red line of where they can get funds, which is what a lot of people 35 and under are doing,” he said.
Rising borrowing costs have triggered a new source of business for Julie DeBondt-Barker. Melbourne-based DeBondt-Barker, who runs a buyer’s advocacy agency specialising in first home buyers, has picked up 10 seller advocacy mandates over the past three months from the owners of one and two-bedroom apartments wanting to offload their properties.
“There are investors that are just dumping,” Ms DeBondt-Barker said.
“It seems like a lot of them are baby boomers that are deciding they might as well cash up now, it’s not getting any better. If they had a crystal ball, they would have done it a year ago. But they’re like ‘close enough is good enough. I’ll cash up and get out now’. There’s a lot of that.”
Ms DeBondt-Barker’s core market of first home buyer customers are also cautious.
“The feeling [among] some of the first home buyers we’ve got is that the bank is saying they can borrow $550,000, but they really don’t want to borrow over $500,000,” she said.
“They don’t want to go to that max and they know the market’s cooling, so the ball’s in their court a bit. They’re a bit more stand-offish when they’re buying.”
This article is from Australian Financial Review, please click the following link for the original article: https://www.afr.com/property/residential/buyers-and-sellers-buckle-up-for-the-biggest-correction-in-40-years-20220708-p5b03o