Tough Times for Sydney Real Estate Agents

Australian Property Market Update 
3rd July, 2018 

One of my clients shared a story with me this week of a recent encounter with a Sydney real estate agent in a rather unlikely place – his Uber to the airport. Unable to bring home enough cash selling homes, this agent recently opted for a more certain income behind the wheel. Turns out he had some hot tips for my client though, so it was a win both ways.

It made me think… this agent is probably not the only one doing it tough.

Housing Supply and Demand

The nationwide clearance rate continues to hover around the mid-50s, the lowest point since 2012. Over the final week of June, the preliminary reports suggest 56.7 percent of auctions were successful. The total number of auctions held across the capital cities was 1,669, which amounts to 180 fewer than the previous week.

While Sydney also returned an official preliminary clearance rate in the mid-50s, it appears Melbourne will clear just above 60 percent for the week. In Perth, only 25 percent of auctions attracted a winning bid.

Here are all the latest preliminary auction numbers, as reported by CoreLogic:

Source: CoreLogic

Keep in mind that the above stats are reported by agents, and in a declining market, it benefits them to inflate the results for the sake of the Monday morning headlines. They may fudge the numbers in several ways, such as reporting only a selection of the overall results or sometimes even counting successful auctions twice.    

Also the usual double dipping of successful sales, so as to further artificially boost the auction numbers @Domaincomau @realestate_au pic.twitter.com/2RjbaSt71B

— Nish (@PuranikNishant) July 1, 2018

Once factoring in both the fudged stats and the homes that sold prior to auction, the real success rate for homes sold at auction in Sydney is likely in the 35 to 40 percent range.

Tough times for agents indeed.

Recent Changes in Home Prices

As expected with soft auction clearance rates, home prices in Sydney continue to fall. Corelogic’s official data for houses now reflects a year-on-year decline in the New South Wales capital of just over 6 percent. Melbourne fared much better over the past year, but it’s monthly results are all now in the red.

The Brisbane and Adelaide markets remain the strongest for now.

Here’s the latest median house price data from Corelogic:

 Source: CoreLogic 

The Availability of Cheap Credit?

The RBA met today and decided for a twentieth consecutive period to leave the cash rate on hold at a record-low 1.50 percent. That came with little surprise as few expect our economy to be able to withstand an increase in borrowing costs. A higher cash rate would be detrimental, both in terms of a cash flow squeeze on homeowners and investors as well as pain for exporters through a stronger Aussie dollar.

While our reserve bank has kept the easy money tap on, our other regulators are working to redirect credit away from our inflated housing market. Though borrowing costs remain relatively low for now, lending standards are tightening, and many investors are finding it tough to borrow.

From my perspective, I see plenty of desire from investors to buy, but it’s getting tougher and tougher to access capital through traditional means. According to Digital Finance Analytics, 4 in 10 loan applications are now being rejected. These potential borrowers simply represent too great of a credit risk to the banks. It seems lenders are mitigating the possibility that things could get worse before they get better.

The Federal Reserve Bank across the Pacific recently increased its overnight lending rate and signaled more rate rises to come later in the year. This has led to rising bond yields, which is already causing higher borrowing costs to trickle through to the Aussie economy.

ING and Heritage Bank just increased its standard variable mortgage rates by about 10 basis points and the Big Four (and presumably many others) are expected to do something similar by September.

A tenth of a percent increase can be comfortably absorbed by most homeowners, but if rates continue rising overseas, this recent round of out-of-cycle hikes could be the first of many. That would no doubt put a squeeze on discretionary spending, having further reaching ramifications in the broader economy. In such a scenario, I wouldn’t be surprised to see an RBA cash rate closer to 1 percent.

Maybe that Uber side-gig isn’t such a bad idea.

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.