The future of Sydney's housing market, June 2005

Future of Sydney’s Housing Market? June 2005

We've all heard about the darkness that descended on Sydney's house prices as the boom years drew to a close in 2003 – but just what does the future hold?
There are gloomy predictions from BIS Shrapnel of further 7 per cent falls in Sydney's house price over the next three years but other analysts are more optimistic, with at least one believing the worst is over.
The mixed views on the future of house prices might seem confusing, but there is one bright point that all real estate agents and analysts seem to agree on.
“It’s the perfect time for what I call the piranhas to go in and get a bargain,” says Residex managing director John Edwards.
“Anything with good scarcity, nice views and appealing to owner occupiers will hold up in price, but properties with any faults or drawbacks are being discounted,” says Macquarie Bank’s head of property research Rod Cornish.

THE CONFUSION OVER PRICES

Australian Property Monitors statistics show that Sydney's median house price in March 2005 dropped to $470,500, a 6.8 per cent decline since December 2003.
Residex managing director John Edwards says the Sydney housing market bottomed in October 2004, and prices have been steadily rising since then. Residex are the most optimistic analysts and argue the downturn is over.
Residex say median values still show price falls because more lower-priced property is bought and sold during market downturns.
"The median sales figures show the market still looks like it's falling and you would expect that at the bottom of a housing cycle because the figures react slowly," Edwards says.
Residex - who use different data collection methods to other analysts such as APM - says the March 2005 median was at $530,485 and preliminary data is showing that the June 2005 house price will increase to $535,750.
"The market has passed its worst and the values are starting to rise slightly," Edwards says.

NOT YET TIME TO PARTY

Other property analysts are more circumspect about Sydney's housing market, with Macquarie Bank's head of property research and Australian Property Monitors suggesting prices could fall further this year.
None of the analysts will make a call on how much more prices will fall by, nor will they say how much longer they may continue.
“All you can really say is that it could be some time before prices pick up because the supply has to come back to more normal levels,” says APM research director Louis Christopher.
Christopher says there is a massive oversupply of houses on the market in Sydney, with 5,800 houses listed for sale in April 2005 compared to 4,800 in April 2004 and 2,500 in April 2003.
At the same time, the numbers of houses that actually sell is at it's lowest in more than a decade, with the Real Estate Institute of NSW's Property Focus reporting sales volumes of 5278 in the March 2005 quarter, compared to 8035 at the same time last year.
All these numbers confirm one thing: Sydney's property prices are caught in the downswing of a cycle.
"This is a confidence-driven downturn in the market," says Cornish.
"Interest rates didn't do this to the market - it's all about confidence and there just isn't any right now."
Cornish suggests the downturn will become an upswing as affordability levels improve as wages rise faster than house prices.
Director of Residential at LandMark White valuers, Bill Fatouris, says each Sydney suburb is adjusting prices according to its own unique supply and demand needs.
Some suburbs without a lot of stock on the market are holding up well, particularly in the east where APM registered the only small quarterly gain in median house prices during the March quarter.
"Those areas with good demand are coming out of it OK and some properties at the top end of the market are doing well," Fatouris says.
Edwards says some Sydney suburbs that overdid it during the boom times are still correcting in price, with the suburbs that have the most number of houses on the market suffering more than others with low supply.
"They tend to be suburbs in lower socio economic areas where people really over-committed to buy in the first place - it's the upper middle management type of suburbs like the north shore that have flattened out and are now moving forward," he says.
“You can see places like Mosman starting to improve.”
Real estate agents are still reporting that prices have fallen, and only vendors who are prepared to accept lower prices are selling.
"It's a blood bath out there right now," says Planet Properties principal Rosalie Gordon, who sells in the inner west suburbs of Petersham and Croydon.
Agents have been reporting price declines across Sydney for the last 18 months, but the statistics don't seem to be back up those same levels of anecdotal price declines.
"I would say prices have dropped between five and 15 per cent from the boom times until now," says Bresic Whitney Estate Agent principal Ivan Bresic, who sells in the inner city and eastern suburbs.
The Australian Bureau of Statistics house price index says Sydney house prices did not move at all between December 2003 and December 2004.

THE MARKET

BIS Shrapnel analyst Angie Zigomanis says that no matter what agents say about price falls, the Sydney property market is still very expensive.
"The people who would usually be buying houses are either renting, staying at home for a bit longer or moving to regional NSW or Queensland because they just can't afford to get into the market," he says.
Macquarie Bank's head of property research Rod Cornish says affordability has actually started improving since 2003, even with interest rate rises, and it now takes 37 per cent of wages to pay a mortgage on a median-priced Sydney property.
Every Sydney suburb is undergoing a repositioning from the highs of 2003, with some areas holding up with only moderate price falls and others suffering badly.
Buyers agent Dennis Kalofonos, from Sydney Property Finders, says prices in the north shore and eastern suburbs seem to be fairly stagnant but the inner west and northern beaches "have a lot on the market and consequently offer good buying opportunities".
"The eastern suburbs houses market is very tight right now. You can't find very much at all in the way of three bedroom family homes for that $800,000 to $1.5million price range," he says.
"But if you head to the northern beaches, there seems to be a lot on the market."
In the north shore suburbs around Lane Cove Deborah Kerr Real Estate principal Deborah Kerr says the winter slowdown has come early and her agency does not have as many listings as the same time last year.
"I would also suggest buyer interest is right down - I've had 70 groups through a house at Greenwich and that's about 30 per cent less than I would have had last year," she says.
Planet Properties principal Rosalie Gordon, who has two offices in Croydon and Petersham, says less-desirable suburbs are taking a price pounding.
"Petersham and Stanmore aren't doing as well as other suburbs because buyers are heading to the more affluent areas like Annandale and Lilyfield where prices have dropped back," she says.
"That leaves the other suburbs to lie stagnant and unless the vendors are prepared to take the brutal offers the buyers put forward, there is just no happy outcome."

WHAT IT MEANS FOR BUYERS

Payne Pacific Real Estate Cronulla sales and marketing consultant Luke Barbuto says buyers who have been biding their time and saving more deposit are picking the eyes out of the market.
He says there are several cashed up first home buyers in the Sutherland Shire who were unable to buy during the expensive boom times of 2002 and 2003 but have now saved more deposit and can afford to pay between $500,000 and $700,000.
"But those buyers are very fussy and want a large block of land and a north or a west aspect - they simply will not compromise. We just can't sell places on the highway or on south-facing blocks the way we used to."
Kalofonos says canny buyers are realising it's a perfect time to buy while prices are lower than they have been in two years and there is plenty of stock to choose from.
"I have buyers who have been renting for the last three years and think now is not such a bad time to be trying to buy a premium property in that $2.5 to $3 million range - they are being smart buyers and buying a good asset at a cheap price."
Macquarie Bank's head of property research Rod Cornish says buyers should be aware that the weak sectors of the housing market may get weaker before the property market starts rising again.
"Buyers need to be looking for scarcity, ideally a property which does not have too many faults." He suggests steering clear of areas with a lot of apartment development, and sticking to suburbs that he deems as “scarce locations” which have low numbers of houses coming on to the market.
“That is still the beach suburbs or places close to the city with high numbers of owner occupiers,” he says.
Australian Property Monitors research director Louis Christopher says this year could easily be the best time to snare a real estate bargain.
"There is plenty to choose from right now and as long as the seller is genuinely committed to selling, you can probably negotiate a bargain price," he says.
He also suggests that buyers negotiate hard, research the market well and make confident but low offers on properties.
REI vice president Cristine Castle says the buyers should take their cheque book and be prepared to sign a contract immediately when making an offer that’s below a vendor’s expectations.
"Buyers seem to be sitting on the fence waiting until they feel ready to make a decision, but if they act confidently they are more likely to get the result they want," she says.

WHAT IT MEANS FOR SELLERS

The fact is that sellers probably won't get the price they expect when they sell their current property.
"People who have to sell are the real casualties in this market," says Cornish.
Top quality properties in every suburb are still in hot demand. Kerr says family homes with views and a northerly aspect on the north shore are still achieving above-market prices.
"We just sold a place in Cammeray for $330,000 over its reserve," she says.
Christopher says that sellers should not worry if they are buying and selling in the same market - they will get less for their current property, but pay less for their next property.
"But human nature doesn't work like that," Castles says.
"We all want to be doing things when the rest of the crowd do them."
Gordon says seller confidence is "way down" as buyers hit them with very low offers.
"The vendors just tend to baulk at the offers being made on their property, and unless they are prepared to take them they just don't end up selling," she says.
"The only really committed sellers are the people with high mortgages who just have to get out or the people who have already bought somewhere else."
Castles says sellers must decide how committed they are to the process and will need to listen to their agent during the campaign to ensure a sales result.
"It's also important for sellers to make sure their property looks well-loved and well presented because those are the properties buyers are prepared to make offers on," she says.

BUYERS:

DO research the market and check all recent property sales in the area.
DO check that suburbs have already had some price declines and factor those in to your offer.
DO act quickly if you want to make an offer and put it in writing to show you are genuine.
DO have finance organised in advance and be prepared to sweeten a low offer with terms such as a quick settlement.

SELLERS:

DO work out how genuinely committed you are to selling - is now really the best time to be selling?
DO listen to your agent and accept buyer feedback.
DO follow recent property sales in the area, understanding prices may have come back since 2003 and 2004.
DO present your property in the best possible light during the sales campaign.
DO not commit yourself to buying another property until you have sold your current property.

CASE STUDY

Chris and Lily Taylor are typical of today's hesitant home buyer.
The couple, who had a baby last year, would love to upgrade from their renovated two-bedroom terrace in Paddington to a larger unrenovated house in the outer east or inner west.
They plan to sell their terrace first, and then spend at least six months renting a house while they look for a place to buy.
"We know it's a buyers market but the problem is that we have to become sellers before we can buy - and if we can't get the price we need for our terrace, then we can't sell and we can't buy," she says.
The couple auctioned their house last weekend (June 4) and despite five registered bidders turning up, the property passed in.
"WE have done all our sums and know that it will cost us around $70,000 or more to move once we pay stamp duty and selling costs and agents commission - so we have to get a certain price for our terrace to make the move worthwhile," she says.
"If we were planning on doing this two years ago, we would have bought and sold straight away because we wouldn't have wanted to market to rise while we were looking around.
"It's very different today."
Their terrace is still on the market, waiting for an interested buyer.


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Future of Sydney’s Housing Market? June 2005 We've all heard about the darkness that descended on Sydney's house prices as the boom years drew to a close in 2003 – but just what does the future hold? There are gloomy predictions from BIS Shrapnel of further 7 per cent falls in Sydney's house price over the next three years but other analysts are more optimistic, with at least one believing the worst is over. The mixed views on the future of house prices might seem confusing, but there is one bright point that all real estate agents and analysts seem to agree on. “It’s the perfect time for what I call the piranhas to go in and get a bargain,” says Residex managing director John Edwards. “Anything with good scarcity, nice views and appealing to owner occupiers will hold up in price, but properties with any faults or drawbacks are being discounted,” says Macquarie Bank’s head of property research Rod Cornish. THE CONFUSION OVER PRICES Australian Property Monitors statistics show that Sydney's median house price in March 2005 dropped to $470,500, a 6.8 per cent decline since December 2003. Residex managing director John Edwards says the Sydney housing market bottomed in October 2004, and prices have been steadily rising since then. Residex are the most optimistic analysts and argue the downturn is over. Residex say median values still show price falls because more lower-priced property is bought and sold during market downturns. "The median sales figures show the market still looks like it's falling and you would expect that at the bottom of a housing cycle because the figures react slowly," Edwards says. Residex - who use different data collection methods to other analysts such as APM - says the March 2005 median was at $530,485 and preliminary data is showing that the June 2005 house price will increase to $535,750. "The market has passed its worst and the values are starting to rise slightly," Edwards says. NOT YET TIME TO PARTY Other property analysts are more circumspect about Sydney's housing market, with Macquarie Bank's head of property research and Australian Property Monitors suggesting prices could fall further this year. None of the analysts will make a call on how much more prices will fall by, nor will they say how much longer they may continue. “All you can really say is that it could be some time before prices pick up because the supply has to come back to more normal levels,” says APM research director Louis Christopher. Christopher says there is a massive oversupply of houses on the market in Sydney, with 5,800 houses listed for sale in April 2005 compared to 4,800 in April 2004 and 2,500 in April 2003. At the same time, the numbers of houses that actually sell is at it's lowest in more than a decade, with the Real Estate Institute of NSW's Property Focus reporting sales volumes of 5278 in the March 2005 quarter, compared to 8035 at the same time last year. All these numbers confirm one thing: Sydney's property prices are caught in the downswing of a cycle. "This is a confidence-driven downturn in the market," says Cornish. "Interest rates didn't do this to the market - it's all about confidence and there just isn't any right now." Cornish suggests the downturn will become an upswing as affordability levels improve as wages rise faster than house prices. Director of Residential at LandMark White valuers, Bill Fatouris, says each Sydney suburb is adjusting prices according to its own unique supply and demand needs. Some suburbs without a lot of stock on the market are holding up well, particularly in the east where APM registered the only small quarterly gain in median house prices during the March quarter. "Those areas with good demand are coming out of it OK and some properties at the top end of the market are doing well," Fatouris says. Edwards says some Sydney suburbs that overdid it during the boom times are still correcting in price, with the suburbs that have the most number of houses on the market suffering more than others with low supply. "They tend to be suburbs in lower socio economic areas where people really over-committed to buy in the first place - it's the upper middle management type of suburbs like the north shore that have flattened out and are now moving forward," he says. “You can see places like Mosman starting to improve.” Real estate agents are still reporting that prices have fallen, and only vendors who are prepared to accept lower prices are selling. "It's a blood bath out there right now," says Planet Properties principal Rosalie Gordon, who sells in the inner west suburbs of Petersham and Croydon. Agents have been reporting price declines across Sydney for the last 18 months, but the statistics don't seem to be back up those same levels of anecdotal price declines. "I would say prices have dropped between five and 15 per cent from the boom times until now," says Bresic Whitney Estate Agent principal Ivan Bresic, who sells in the inner city and eastern suburbs. The Australian Bureau of Statistics house price index says Sydney house prices did not move at all between December 2003 and December 2004. THE MARKET BIS Shrapnel analyst Angie Zigomanis says that no matter what agents say about price falls, the Sydney property market is still very expensive. "The people who would usually be buying houses are either renting, staying at home for a bit longer or moving to regional NSW or Queensland because they just can't afford to get into the market," he says. Macquarie Bank's head of property research Rod Cornish says affordability has actually started improving since 2003, even with interest rate rises, and it now takes 37 per cent of wages to pay a mortgage on a median-priced Sydney property. Every Sydney suburb is undergoing a repositioning from the highs of 2003, with some areas holding up with only moderate price falls and others suffering badly. Buyers agent Dennis Kalofonos, from Sydney Property Finders, says prices in the north shore and eastern suburbs seem to be fairly stagnant but the inner west and northern beaches "have a lot on the market and consequently offer good buying opportunities". "The eastern suburbs houses market is very tight right now. You can't find very much at all in the way of three bedroom family homes for that $800,000 to $1.5million price range," he says. "But if you head to the northern beaches, there seems to be a lot on the market." In the north shore suburbs around Lane Cove Deborah Kerr Real Estate principal Deborah Kerr says the winter slowdown has come early and her agency does not have as many listings as the same time last year. "I would also suggest buyer interest is right down - I've had 70 groups through a house at Greenwich and that's about 30 per cent less than I would have had last year," she says. Planet Properties principal Rosalie Gordon, who has two offices in Croydon and Petersham, says less-desirable suburbs are taking a price pounding. "Petersham and Stanmore aren't doing as well as other suburbs because buyers are heading to the more affluent areas like Annandale and Lilyfield where prices have dropped back," she says. "That leaves the other suburbs to lie stagnant and unless the vendors are prepared to take the brutal offers the buyers put forward, there is just no happy outcome." WHAT IT MEANS FOR BUYERS Payne Pacific Real Estate Cronulla sales and marketing consultant Luke Barbuto says buyers who have been biding their time and saving more deposit are picking the eyes out of the market. He says there are several cashed up first home buyers in the Sutherland Shire who were unable to buy during the expensive boom times of 2002 and 2003 but have now saved more deposit and can afford to pay between $500,000 and $700,000. "But those buyers are very fussy and want a large block of land and a north or a west aspect - they simply will not compromise. We just can't sell places on the highway or on south-facing blocks the way we used to." Kalofonos says canny buyers are realising it's a perfect time to buy while prices are lower than they have been in two years and there is plenty of stock to choose from. "I have buyers who have been renting for the last three years and think now is not such a bad time to be trying to buy a premium property in that $2.5 to $3 million range - they are being smart buyers and buying a good asset at a cheap price." Macquarie Bank's head of property research Rod Cornish says buyers should be aware that the weak sectors of the housing market may get weaker before the property market starts rising again. "Buyers need to be looking for scarcity, ideally a property which does not have too many faults." He suggests steering clear of areas with a lot of apartment development, and sticking to suburbs that he deems as “scarce locations” which have low numbers of houses coming on to the market. “That is still the beach suburbs or places close to the city with high numbers of owner occupiers,” he says. Australian Property Monitors research director Louis Christopher says this year could easily be the best time to snare a real estate bargain. "There is plenty to choose from right now and as long as the seller is genuinely committed to selling, you can probably negotiate a bargain price," he says. He also suggests that buyers negotiate hard, research the market well and make confident but low offers on properties. REI vice president Cristine Castle says the buyers should take their cheque book and be prepared to sign a contract immediately when making an offer that’s below a vendor’s expectations. "Buyers seem to be sitting on the fence waiting until they feel ready to make a decision, but if they act confidently they are more likely to get the result they want," she says. WHAT IT MEANS FOR SELLERS The fact is that sellers probably won't get the price they expect when they sell their current property. "People who have to sell are the real casualties in this market," says Cornish. Top quality properties in every suburb are still in hot demand. Kerr says family homes with views and a northerly aspect on the north shore are still achieving above-market prices. "We just sold a place in Cammeray for $330,000 over its reserve," she says. Christopher says that sellers should not worry if they are buying and selling in the same market - they will get less for their current property, but pay less for their next property. "But human nature doesn't work like that," Castles says. "We all want to be doing things when the rest of the crowd do them." Gordon says seller confidence is "way down" as buyers hit them with very low offers. "The vendors just tend to baulk at the offers being made on their property, and unless they are prepared to take them they just don't end up selling," she says. "The only really committed sellers are the people with high mortgages who just have to get out or the people who have already bought somewhere else." Castles says sellers must decide how committed they are to the process and will need to listen to their agent during the campaign to ensure a sales result. "It's also important for sellers to make sure their property looks well-loved and well presented because those are the properties buyers are prepared to make offers on," she says. BUYERS: DO research the market and check all recent property sales in the area. DO check that suburbs have already had some price declines and factor those in to your offer. DO act quickly if you want to make an offer and put it in writing to show you are genuine. DO have finance organised in advance and be prepared to sweeten a low offer with terms such as a quick settlement. SELLERS: DO work out how genuinely committed you are to selling - is now really the best time to be selling? DO listen to your agent and accept buyer feedback. DO follow recent property sales in the area, understanding prices may have come back since 2003 and 2004. DO present your property in the best possible light during the sales campaign. DO not commit yourself to buying another property until you have sold your current property. CASE STUDY Chris and Lily Taylor are typical of today's hesitant home buyer. The couple, who had a baby last year, would love to upgrade from their renovated two-bedroom terrace in Paddington to a larger unrenovated house in the outer east or inner west. They plan to sell their terrace first, and then spend at least six months renting a house while they look for a place to buy. "We know it's a buyers market but the problem is that we have to become sellers before we can buy - and if we can't get the price we need for our terrace, then we can't sell and we can't buy," she says. The couple auctioned their house last weekend (June 4) and despite five registered bidders turning up, the property passed in. "WE have done all our sums and know that it will cost us around $70,000 or more to move once we pay stamp duty and selling costs and agents commission - so we have to get a certain price for our terrace to make the move worthwhile," she says. "If we were planning on doing this two years ago, we would have bought and sold straight away because we wouldn't have wanted to market to rise while we were looking around. "It's very different today." Their terrace is still on the market, waiting for an interested buyer.