Our Marketplace

There is a saying ‘Nature abhors a vacuum’. It seems when people don’t know what is going to happen, the louder and more emphatic they become with their opinions.

There are many loud opinions as to what is happening in the market and how it is holding up. Real estate is an industry composed of many players and even more commentators. Journalists pick up a researcher’s opinions and observations and run through a simplifying process, creating sound bites all intended to make the information easier to understand. As the headlines appear, the original researchers are often left wondering how their observations got so distorted.

It seems our desire for certainty means we will distort and filter information to prove we know what is happening rather than allow the data to challenge what we believe. Psychologists call it Cognitive Bias.

My industry seems to offer people certainty on steroids.

So many salespeople trot out the latest statistics to prove one point or another as they try to convince a seller that they, more than anyone else are the expert they need to sell their home.

Right now, from our Real Estate Institute of NSW down, people are talking the market up, it is strong, auction clearance rates are great, please believe us, please sell. On the other side of the divide, banks and lenders are saying that they think the market will fall, 10%, 20% and even 30%. For a while, with all the negative headlines, it felt like there was a race to suggest the worst.

The simple fact is that our society’s response to COVID-19 only started about three months ago. People say a lot can change in a short space of time, and that’s very true, but knowing what is happening right now, well that isn’t so easy.

Let’s start with Auctions.

Auction Clearance Rates

The Domain media organisation reports auction clearance rates each week. You see them in the Sydney Morning Herald each Sunday and quoted as a barometer on market strength.

Domain calculates this by having staff ring each selling agent who has had an auction during the week and ask them how it went. Simple enough system but when most agents don’t sell their properties, they become a little reluctant to ring Domain back. Most want to avoid the negative image of their company name next to the words ‘Passed In’ or ‘No bid’ in Sunday’s papers for all to read.

Domain uses multiple categories such as sold or sold prior or passed in and so on to communicate the outcome. Maybe they should also have a category, Agent is avoiding us.

Reading Domain’s methodology, they say their clearance rates only reflect the auctions where they know the results. That means they are based solely on property data that agents are happy to report, not the results that agents don’t want to provide. That makes their data way more optimistic than reality.

SQM Research has similar doubts about the reliability of these numbers and so has put together their own data. Instead of relying on agents, they track the properties advertised on the major portals. If a property is re-advertised after the auction, they assume it didn’t sell. If the property disappears off the portals without appearing as sold it is listed as withdrawn without selling. All that seem fair enough.

The following figures are for all the Sydney area. SQM has been tracking the information since the beginning of February. To give you an idea of the difference I’ve compared SQM’s and Domain’s figures.

By May, Domain was reporting close to 2 out of 3 properties selling whereas SQM was showing that it was closer to 2 out of 5.

Why such a large discrepancy? In May only 55% of auction results were being reported back to Domain by sales agents. Given the low numbers of auctions, I do wonder why so many sales agents didn’t have time to return phone calls!

Most market commentators suggest a clearance rate of 70% or higher predicts growth in property prices and a clearance rate of 60% or more is indicative of a market that will maintain prices. The real estate industry is excited by Domain’s clearance rates over May because they support their argument that real estate prices are weathering the COVID-19 pandemic. You might have also guessed; the industry is very quiet about SQM’s auction figures.

Real estate prices may hold up, but I don’t think Auction clearance rates are saying that right now.

Sales volumes

If you have low sales volumes, there is not enough data to accurately predict what is happening to prices.
You can see the volume of properties auctioned has dropped sharply from March to now and it’s understandable given that on 25th March, the Federal Government banned Public Auctions and Open Houses. They were reinstated from the 1st May, so it is probably still a bit early to see a bounce in the figures yet.

But the big issue is the numbers of properties sold. For this time of year, we usually have 2000-3000 sales per month by auction. It has dropped to 15% of that now.

Please don’t misunderstand. I’m not suggesting auctions have failed as a selling method; Private Treaty numbers are down as well, it is just harder to find clear, up-to-date, numbers on Private Treaty Sales.

CoreLogic produces a Hedonic Home Value Index. These are the price growth percentages you are most likely to see quoted on TV and in the paper when any journalist talks on how property prices have increased or fallen.

Without getting too complicated, this index is a piece of advanced mathematics. It tries to break down every sale into the value of its components. It takes every sale of a home and calculates separate values attached to the land, the location, the size of the house and how updated it is and so on by doing regression analysis. Computers need large volumes of sales to work with to do the calculations.

Well, the critical point right now isn’t the process; it is that CoreLogic has had to stop publishing it. And that’s because they don’t have enough sales information. It seems low listing numbers and low results aren’t the exceptions but rather the rule right now.

This time last year we had just come through an election and the property market had been in a hiatus. The volume of property coming on to the market fell 20% nationally, one of the largest drops ever recorded. Most expected a Labor win and changes to negative gearing and capital gains tax being made almost immediately if they were to take office.

Well even against those low listing volumes, this market has dropped activity by another 20% roughly. CoreLogic report we are 43% down below the five-year average of property coming on to the market.

The question many are quietly asking is, “What happens when people stop holding off their decision or need to sell?”

Stock on the market

You might be thinking by now that there is very little stock on the market for sale and that’s understandable. Only issue is, it isn’t right. Back to SQM. They track all property advertised as I said and how long its been on the market. (Yes, I know, again with the tables, but it’s the only what I can show you easily). This is for 2112 postcode showing total unsold stock each April.

The earlier years when the market was rising and turning over well, we might have run at 150 properties. But over the last three years the numbers of unsold properties on the market have jumped by about 40%. And at the same time as we have less property coming on the market.

Property Prices- Nobody knows

If you have ever watched the TV show QI that Stephen Fry appeared as the quizmaster and now Sandi Toksvig, you will be familiar with this phrase. On occasions, bonus points are awarded for correctly answering a question with ‘Nobody Knows’.

That’s the right answer with property prices. Right now, most people think the market is quiet because of COVID-19. Of that there is no doubt. But the turning of a market, the drivers that send markets down over years, they seem to already be in place, and they appeared well before the pandemic.

There is a lot that can change and send the market off in a different direction. Government bonuses, changes in taxation and immigration and of course the biggest driver of all, interest rates. I suspect we will not have clarity until October when the banks stop giving mortgage holidays and JobKeeper winds back.

That’s when I think we will see how resilient this market is.

Our Autumn Local Market Update is now out!

I have had so many people invite me into their homes over the years, wanting an idea of value and chat about the market. It’s a delightful part of the job. You learn about their life and the history of their home, and often the focus is on how things have changed for them and how their home doesn’t quite suit them as well as it did when they first bought it. Most people love their home and the area they live in, they feel comfortable and safe, but family grows up, and things change.

I met with some friends this last weekend, two of their daughters have got married and moved out, their youngest has finished university and has her first job. They are looking forward to being empty nesters, to coming home and finding the house and the washing and everything there precisely as they had left it. I remember when my son moved out of home, discovering the pure joy of finding the food we left in the fridge still there. You love your children, but it’s the parents that sometimes rediscover the pleasure of being independent.

My friends have a big home, 4 bedrooms, study, stairs and plenty of bathrooms. A great family home but possibly not as ideal for them now that they start their retirement. As an agent, you learn never to give friends real estate advise unless they really, really want it. Family is different, they ask your opinion and then tell you you’re wrong.

Treading carefully, I asked where they thought they might move to. And I heard the same thing I have heard so many times before. We don’t know. Downsizing is something everyone sees sense in, but most have no idea how to go about it. When you were buying your current home, you were upgrading, moving into something bigger, closer to where you wanted to be, you were stretching your budget and what you could buy. It may not have been perfect, but you could always renovate later.

Downsizing is driven by different needs requires a few different ways of thinking. Upsizing is a need for space and location. Downsizing might seem to be about reducing space, but it’s not. It is about things that you are yet to fully appreciate and understand. Let me tell you about Jan.

Jan called me down to her property to get an update on her villa’s value. She was divorced, had bought the villa 5-6 years before and by all appearances was comfortable, happy and well suited to the home. As an agent, you pick up pretty quickly if a home doesn’t suit a person and vice versa.  She showed me around, we chatted about what she had done to the property, and we then sat down and I showed her some of the properties that had sold nearby. To me, she seemed to have no reason to move, and so I asked her, ‘Why would you move from here, it seems to suit you so well?’

Her answer took me back a little because it was so definite and yet so vague. She wanted to be somewhere where there was more life and things to do. But where that was, she didn’t know.

‘How do I find where I should buy if I have no idea what I want?’

What a great question. It’s the same question my friends were asking, just not in the same form. Most people, when they talk about downsizing, talk about single level, no stairs, low maintenance, and so on. They talk about what they don’t want in their current home rather than what they do want in the next one. Knowing what you don’t want is important, it’s just not enough.

Back to Jan. I was also taken back by her openness and by my own lack of process as to how to systematically find the next place to live. What is the logical sequence you should employ? Most people who are empty nesters think about selling only in so much as ‘We will probably only move when we have to, because the place is too hard to look after or our health has got to that point, or we need the money’.

Ask yourself this question. If I didn’t own this home today but instead had its monetary value sitting in a bank account ready for me to spend, would this be the home I would buy? If you hesitate, it’s because you realise that there are different things you need, and you don’t have a clear idea as to what they are. Now back to Jan

I asked her to look at Realestate.com using the money we estimated for her villa and what that might buy in different areas. I had her consider anywhere from the lower mountains all the way through to Mosman and the City. Her job wasn’t to find areas she liked but to eliminate the areas and property she didn’t like. Unless there was a firm no to something, it was kept on the list as possible. This was about increasing options, not reducing them. Once she had a list of potential areas, she went out and checked out a few open houses in each location to see what she could get. Again, not looking for Mr Right but rather, getting rid of all the Mr Wrongs.

Her reduced list of property types and locations would have common themes. We just had to find what they were. Realised that certain things would make her happy, and the same with the characteristics of certain places. Now we had a profile of what good looked like.

This process was surprisingly fast, like 4 weeks fast. In that time, Jan had identified places she would have never considered, but when we talked through what it was about them, the same things kept coming up. And again, I found this next bit interesting. She decided to sell, and I mean really decided, like not going to be talked out of it. Jan didn’t know what she was going to buy exactly or where, but she knew it existed and she was more than comfortable to look for a place at the same time hers was on the market. I realised there is no certainty in buying a selling a home. Instead, if you have enough confidence and clarity in what you are doing. If you know it is going to make you happier even though everything isn’t totally apparent. It’s about being confident you’ll work it out as you go. Remind you of what you were like when you were buying?

Jan found a newer unit in Crows Nest, one flight up and with a lift. She would walk across the Harbour Bridge a couple of days a week, had her cats (I swear, one was the size of a horse and not to be messed with) and shops and café’s all round. You might be thinking, that’s an obvious place to move to, but Jan had never lived anywhere near there before. It was only obvious when she stopped looking for what she was missing and allowed herself to explore and discover.

There is a fascinating Ted talk by Barbara Oakley on Learning how to Learn. She described the mind trying to resolve a problem much the same way a pinball machine will bounce the pinball around. Struggling with a problem is like you have too many bumpers in the machine. The pinball gets stuck in one corner, bouncing around and then running down the side of the machine and out. By removing some of the things you ‘know’ and allowing the mind to consider more, a solution will come.

The world has changed a little since Jan sold and bought. We have drunk plenty of coffee together over time, and to my great relief she has always maintained how happy she is with her decision.

I made a different suggestion to my friends. I asked them to check out what the ‘Walk Score’ was for where they lived. Walk Scores are generated by a private company for every address in Australia, Canada and the USA. They calculate how liveable a location is based on what amenities you can walk to from that address. I then suggested that they look at as many other suburbs as they can to see how they compare. It was surprising to them that their own home didn’t score as well as they thought. That’s not surprising to me. They bought the home for size, driving time to where they needed to work and what was best for their growing family. It was the right answer for those needs. The thing for them is that what they want and need has changed. That means the answer must as well.

Walk Scores also allowed them to start identifying what is so good about other places. They don’t have to agree, but at least it will get them thinking about what would be useful and what wouldn’t.

My concern for my friends is that they probably have another 20 years living in their own home before they even consider retirement places. I’ve seen people who have grabbed the problem and found a solution that has made them happier. I’ve also seen too many people avoid dealing with the problem and still been okay. But okay wasn’t as good as it could have been.

It is probably the time of year, but with so many changes going on in the world, I was interested to see how things had changed over the last 9-10 years.  The information below is from a variety of sources, SQM research, Domain PriceFinder and CoreLogic. The problem with statistics is that no one calculates them the same way, and that goes for these three organisations as well. It is part of the reason why there is so much argument about what is happening in the market.

Sales Volumes

These comparisons cover postcode 2112, which includes Ryde, Denistone East and Putney. I’ve looked at the surrounding postcodes, and they are all pretty similar so this will give you a good indicator of how things have changed and how they haven’t.

The numbers that strike me is the amount of property that has been on the market for a while. These numbers come from the SQM Research website. At the end of November 2019, they had identified 254 distinct properties advertised for sale and still not sold. Of those, 59 have been on the market for more than six months.

While the property market has improved since 2018, it is nowhere near what it was. Some of that has to do with new units taking longer to sell. On the other hand, SQM only tracks those advertised properties with a fully unique address. Most developers don’t advertise every unit’s individual address because they don’t want to show how many they still have for sale in a block. That would mean that SQM is more likely to be under-reporting the numbers of properties sitting on the market rather than over-reporting.

Compare that to 2010, when there was a lot less property on the market and only 17.5% of those properties were on the market for more than three months. In this market, sitting on the market is a lot more common than it used to be. And they are not the only ones to report this slower turnover.

PriceFinder who is owned by Domain, track numbers of sales and median sale price. Here are the numbers for the last six years of house sales (not all sales) in Ryde.

Back in the 1990’s and early 2000’s the average number of house sales in the suburb of Ryde was around 250 per year. That volume has fallen by close to half. So all we can say is a lot less property is selling and getting sold is not as easy as many are suggesting.

Sales Prices

Again there is a lot of disagreement between the researchers. CoreLogic is regularly quoted in the news feeds and papers and uses a variety of sources of information; they also use a rather complex algorithm (mathematical formula) to adjust the data to reflect what they believe is going on in the market. PriceFinder uses the figures from the Land titles office and makes little adjustment to the numbers to come up with their median price. These figures come from PriceFinder.

CoreLogic has been reporting growth in Sydney prices since we had the election and the interest rates started to drop, so let us look at their figures for this year. They report median sale prices every month, so if the market has recovered in Ryde, these figures should show it. Again these are for houses rather than units.

Month           Median Price

Jan                  $1,466,250

Feb                  $1,410,000

March             $1,393,750

April               $1,373,500

May                $1,370,000

June              $1,350,000

July              $1,350,500

Aug               $1,338,000

Sept             $1,335,000

The statistics aren’t showing a recovery so much as a plateauing. Maybe October through to December will show some growth. We will have to wait and see.

If this looks a little bleak, it’s not really. Wait until you see our review next month on the rental market.  Now that’s rough.

What do tenants want?

With good tenants being harder to find, what do good tenants want in a property seems an obvious question. Every month we receive more than 1000 inquiries from prospective tenants and show more than 400 people through our properties. Our team are meeting and talking to a lot of people about what they want in a rental property and what they don’t and while much of this is anecdotal, I thought it might be helpful to explain how people’s preferences are changing.

Robes and storage

The days of tenants carrying wardrobes up into their properties has well and truly gone but its more than that now. Tenants want space to store things. We see it day in and out that many tenants will first look in the bedrooms for built ins and walk straight back out if all the bedrooms don’t have built in. And before you say, ‘but my second bedroom is too small’, remember many couples want storage not children.

Air conditioning

This one has taken off and we are installing as many as two or three a month. It might be climate change or the fact that so many new properties with air conditioning are available but good tenants who have been in properties 3 or 4 years and paying above market rent are asking for air conditioning to be installed or they will move.

Dishwashers

Slightly less in demand than air conditioning, lots want it and will eliminate a property from consideration if it doesn’t have it. We have retrofitted some dishwashers into older kitchens by dismantling a cupboard. With new kitchens we are suggesting owners include them where possible into the design.

Pets

People want dogs and cats and in units as well as houses. It used to be that strata by laws barred this as a possibility but recent rulings by the courts have made blanket strata bans as illegal. While our preference is to avoid pets, we also know that the pet is not as important as the tenant. We have had good tenants with pets and bad tenants without. Responsible tenants are responsible with their pets and clauses in the standard lease require the carpet to be cleaned and the property fumigated when the tenant leaves.

I’ll admit I’m a bit obsessed with interest rates and how far they can fall. I use to think zero was the limit but it turns out it is not.

Negative interest rates have been available in Europe since 2014 apparently.  The talk of the RBA dropping rates to these levels proves that nothing is off the table when it comes to getting the economy going. However, if you are a property investor, this could get really interesting (ok, pun intended).

A property’s rent well and truly covers the standard outgoings but rarely the mortgage’s interest payments as well unless the loan is relatively small. Banks are now particularly interested in attracting and holding borrowers who have a loan to value ratios (known as LVRs) of less than 60% and are offering extra discounts to win your business.

If mortgage interest rates fall to zero or near it, we could reach a point where much of Sydney investment property could be generating positive cashflow. This used to be the strength of regional property investment but never Sydney property.

In the past, people sold their investment property when they were retiring and invested the money to generate an retirement income.

Maybe that could change and residential investment instead could become an acceptable income generator.

SQM research has released their report into Vacancy Rates across the country. Across Sydney it shows that the vacancy rate for June 2019 now sits at 3.5% which may not mean a lot to many. Statistically 2% vacancy is considered to be indicative of stable rental market while higher vacancy rates suggest rents will fall.  So, 3.5% isn’t great news. In June 2018, the vacancy rate in Sydney was 2.8%.  That’s a deterioration of 25% from last year to now. It probably won’t surprise you that unit vacancies are worse than houses.  This is a direct result of the unit building boom. However, our area is different as they say, so I accessed a specialist report from SQM Research for postcode 2112 because it is indicative of our local area.

Vacancy rate for 2112 is sitting at 4.5%, and that is really not good.

On property prices and growth, SQM use a star rating system for each postcode to identify areas they consider good buying.  2112 comes with a 3.2-star rating which means as they say,

‘There is greater than average risk of the area underperforming over the medium term’.

 But always with statistics, you have to ask, ‘Compared to what?’

Well across NSW, postcode 2112 still rated better than close to 60% of all the postcodes.  In fact, around 50% of postcodes were rated as areas that required ‘Strong Caution’ or just flat out ‘Avoid’. Real estate is going to stay tough for a while, but we will still be better off than plenty of other Sydney property owners.