Winter Supply Slump Providing Support for Home Prices

Property Market Update for Week Ending 4 June 2017 

Key Property Market Highlights: 

• Auction volume was lower this week, but demand held steady.
• Home prices stopped falling in Sydney, and rose slightly in Melbourne.
• With the Queen’s Birthday long weekend approaching, auction supply will fall.
• The RBA kept the cash rate on hold at 1.50 percent this week.

This Week’s Preliminary Auction Activity (Week Ending 4 June)

The property market generally slows down in the winter months, but this year, sellers remain more active than last. Auction volume for the combined capital cities was down on the week, from 2,885 last week to 2,545 this week, but higher than the 2,008 auctions held one year ago. The preliminary clearance rate was 73.9 percent, but don’t expect that to hold after the final results come in. Over the first weekend of winter last year, 68.2 percent of auctions were successful.

* no results have been reported yet for Tasmania
Source: CoreLogic

Demand appeared strong in Sydney, where 1,000 auctions were held, and after a preliminary count, buyers successfully cleared 77.5 percent. Last week, the final tally of successful auctions was 72.7 percent. There were about 100 fewer homes auctioned this week than last. Over the first weekend of June 2016, sellers brought 692 homes to auction with a success rate of 72.9 percent.

In Melbourne, the preliminary clearance rate held relatively steady from last week. Sellers brought 1,181 homes to auction and the initial count indicates a clearance rate of 75.4 percent. Last week, the final clearance rate dropped to 74.2 percent across 1,366 auctions. Over the same weekend last year, the clearance rate was 71.1 percent on auction volume of 970.

Canberra was the only other city this week to post a preliminary result in the 70’s.  

Last Week’s Final Auction Results (Week Ending 28 May)

Sydney, Melbourne and Canberra all held above 70 percent after all the auction results were counted. Sydney‘s preliminary count was a little more accurate last week, but still managed to fall several percentage points.

Here are the final results for all the capital cities last week:

Source: CoreLogic

For the historical data of weekly auction clearance rates, click here.

Recent Price Movements

Home prices movement in Sydney was flat over the past week, but Melbourne rose ever so slightly. Looking back on the month, prices remain down in our two largest cities. Sydney is now the only capital city to have recorded a quarterly decline.                                                                                               

Brisbane home prices fell half a percent over the past week but the median home price in Adelaide increased by 0.83 percent.

Though Perth is still down 2 percent on the year, the west coast city was the standout performer for the week, with home prices there jumping 1.26 percent in the last seven days.

Here’s CoreLogic’s most recent data for all the capital cities:

Source: CoreLogic

Property Market Analysis

There were fewer auctions on offer in Sydney and Melbourne, so we saw clearance rates pick up a little. With plenty of buyers competing for a fewer number of properties, prices stopped falling in Sydney and even rose a little in Melbourne.

Brisbane’s easing this past week is likely seasonal. Adelaide and Perth, which saw price boosts over the past seven days, could be attracting east coast investor attention; Adelaide because it’s inexpensive, and Perth because it’s perceived by some to be at the bottom of a cycle.   

With the Queen Birthday long weekend coming up, expect auction volumes to drop considerably. Only 900 auctions are scheduled for Sydney and Melbourne combined. Whether buyers also take the weekend off will be another story. If not, we’re likely to see clearance rates rise again next week, and more support provided for property prices, at least in the very short-term.

Until credit becomes more expensive or harder to get, it’s hard to see demand rolling over and home prices falling much further.

What It Means For Investors

The RBA Board met today and decided to leave the cash rate on hold at a record-low 1.50%. Before cutting rates, the RBA will first need to either see some softening in the Sydney and Melbourne property markets or have a firm plan in place with APRA to counteract its monetary easing.

An interest rate hike was certainly not on the cards, thanks to our anaemic economic growth. The latest GDP growth numbers are due out tomorrow, but the forecast is bleak.

Most economists expect that in the first quarter of 2017, our economy grew a measly 0.2 percent, bringing the year-on-year growth to only 1.5 percent. That’s half of where it really needs to be to boost wage growth. If the 0.2 percent holds true, or it ends up being even worse as NAB has forecasted, the RBA may be adding a little fuel to the monetary fire before the end of winter.

New South Wales just warmed the hearts of first homebuyers by abolishing stamp duty on their first home purchases under $650,000. The change takes effect on July 1, so it sucks for those who recently entered into a contract. Expect a lull in that segment of the market for the next few weeks until the new tax year. After that, I suppose it won’t take long until home prices rise enough to wipe out most or all of the intended benefit.

If you know where home prices are going amidst all of this regulatory tinkering, then, well, you’re smarter than I am. It’s never been more important to have a clear vision, strategy, and a thorough due diligence system to properly analyse, buy and manage your real estate purchases.

If you’d like to talk through your situation and discuss the best way to proceed, I’m happy to make time to speak to you. Click here to schedule a time.  

What’s your greatest challenge as a property investor in the current market and how are you planning to take action to overcome it?

Take a moment to share your thoughts by leaving a comment below. 

By Jason Staggers

Jason was a personal mentor working with Steve McKnight's Property Apprentices. He helped hundreds of investors apply Steve's teachings in the real world and achieve greater results on their journey to financial freedom. Jason now lives in Perth, WA where he leads Neuma Church.