Does The 'Worst Start To Spring' Auctions Mean The Property Bubble Has Burst?
It's certainly starting to look that way.
Over the weekend Sydney's auction clearance rates fell to a new low of 44.5 percent.
A high clearance rate -- around 75 to 80 percent -- is considered a seller's market, while a lower rate indicates a buyer's market.
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And 44.5 percent is a low, low clearance rate. It's not the lowest it's ever been, said Domain's property expert Dr. Nicola Powell, but it's certainly a new low for this current downturn.
"What that indicates is that vendors are cautious, and buyers are cautious," she told ten daily.
Spring is always a time of increased listings, and this spring was "always going to be tested by the natural increase" in property listings, she said, but this weekend was more or less "the worst start to spring in a decade".
The good news? It's not all doom and gloom, and is in fact looking like a solid opportunity for first home buyers, said economist Saul Eslake.
"It's not good news for someone who's bought a home in the last 12 months, although you'll probably come out in front in the long term," he told ten daily.
This downturn is different to past downturns, such as the ones Australia saw in 2010-2011, 2001-2004, and the late 1980s.
It's not due to the usual dual culprits of an increased interest rate and increasing unemployment, but simply down to the basic economic principals of supply and demand.
Supply of property in all three big East Coast city has increased significantly in recent years, while demand -- traditionally driven by immigration -- has weakened in part to a tightening in lending criteria.
Last time, an interest rate cut by the Reserve Bank helped the property slump, but Dr. Shane Oliver of AMP Capital doesn't think that's happening any time soon.
If anything, we might see interest rates go up, as increased global funding costs put pressure on banks to increase interest rates.
All three experts are in agreement that restrictions on how much buyers can borrow is slowing down the market, which is largely due to a crackdown on dodgy home loans and a tightening up of lending standards -- and you can thank the Royal Commission for that.
Then there’s the general ‘mood’ of the market, which seems absurd until you consider that auction rates are affecting by things like Grand Finals or wet weather.
“A few years ago, for investors, it was about FOMO -- the fear of missing out,” said Oliver.
“There was an idea that if you didn’t get into the property market now, you’d miss out when prices rose the following year.
“Now it’s a case of FONGO -- the fear of not getting out.”
What we’re seeing now is the result of a ‘bubble’ (if you could even call it that, which most experts don’t) bursting a year ago, and the property market catching up.
Perhaps the simplest explanation comes from Powell: those who don't need to sell aren't selling, and those who don't need to buy aren't buying.
The good news is that it’s a great opportunity for first home buyers, with property prices likely to drop anywhere between 10 and 20 percent over the next two or three years.
“For prospective home buyers, it’s great news,” Eslake said.
“Your house is getting cheaper.”
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