Sales and clearance rates show Sydney market resilience

Mon, 17 Aug 2020

Sales and clearance rates show Sydney market resilienceHousing markets have remained relatively resilient through the COVID period, according to CoreLogic’s head of research Tim Lawless. “The impact from COVID-19 on housing values has been orderly to-date, with CoreLogic’s national index falling only 1.6 per cent since the recent high in April, and housing turnover has recovered quickly after its sharp fall in late March and April.”

He said that record low interest rates, government support and loan repayment holidays for distressed borrowers have all helped to insulate the housing market from a more significant downturn: “Advertised supply levels have remained tight, with the total number of properties for sale falling a further 4.3 per cent in the 4 weeks to July 27, sitting 15.2 per cent below where they were this time last year.

“Additionally, increased demand driven by housing specific incentives from both federal and state governments, especially for first home buyers, have become more substantial.”

In another sign of resilience, Commonwealth Bank chief executive Matt Comyn says the property market has so far performed better than it expected a few months ago, with prices only drifting slightly lower.

The head of the country’s biggest bank says his Bank is still assuming a further drop in house prices as it braces for rising unemployment and a slower recovery owing in part to Victoria’s second lockdown.

Stock shortages are playing a big part in supporting Sydney property prices. A usually quiet time for the property market has been even quieter this year, and many would-be vendors have decided to hold back and see what happens before making a commitment to sell their properties.

“Often people will start selling when prices are rising as they look at the market and comparable properties, see that things have jumped and decide it’s a good time to sell,” says Domain’s economist Trent Wiltshire.

“Conversely, when the market is softer people hold back. Obviously, COVID-19 has seen a big effect on the market. In Melbourne and Sydney, prices peaked in February and have fallen enough to discourage people from selling. The restrictions on selling and transacting are another barrier.”

Now, he says, low supply and strong demand from buyers looking to take advantage of record low interest rates appear to have supported prices. “The fact that there are few sales and few transactions are going on is actually a sign of the underlying strength of the market. It means there’s not people being forced to sell.”

Clearance rates steady

The Sydney auction market is showing healthy resilience in the face of restrictions imposed by the pandemic.

The clearance rate was steady in the month of July despite a surge of new listings. The inner west, northern beaches and north-west recorded the strongest clearance rates at 65.5 per

cent, 64 per cent and 62 per cent, while the city, the eastern suburbs and the lower north shore weren’t far behind.

Even the Reserve Bank’s latest Statement of Monetary Policy had some good news for the Sydney market when it declared a "strong bounce-back" in auction rates and listings returning to normal levels.

“While housing prices in most capital cities have declined a little since May, the rising equity market meant household wealth remained largely unchanged, despite the deep recession caused by the coronavirus pandemic.

“Auction clearance rates in Sydney have remained relatively stable in the recent period, at a bit above 60 per cent,” said the RBA.

Domain senior research analyst Nicola Powell said the Sydney market was catching up after a slowdown earlier in the year: “We saw an influx of auction listings which tested buyer appetite,” she said.

“The fact we’ve seen clearance rates hold over July indicates stability in the market. Clearance rates have been holding consistently in the high-50s for three months now.”

She explained that the reason for the recent surge of listings is largely that vendors are catching up after the pause in activity earlier this year, while some homeowners have been bringing their selling plans forward, ahead of the anticipated Spring volume pickup.

In July houses outperformed units with respective clearance rates of 60.2 per cent and 54.5 per cent. This was the biggest difference favouring houses in more than two decades, according to Domain. Significantly, houses have been stronger two months in a row and the gap between houses and units appears to be accelerating.

First-home buyers, usually more likely to purchase a unit, have lately been hesitant to purchase while families looking to upsize have shown themselves to be less wary and buy a new house after selling their former abode.

Damien Co0ley of Cooley Auctions said the inner-west housing market was holding up best, but certain pockets of the eastern suburbs were also still doing well: “It is absolutely fair to say the house market is strong, and the unit market is less competitive [Sydneywide],” he added, but noted quality properties were selling well across the board.

Fewer sticky beakers

Some parts of Sydney are still showing a rise in prices. Sydney’s north-west has escaped house price falls despite the pandemic with new infrastructure and blocks of vacant land luring homebuyers. Domain’s latest House Price Report found house prices in the region rose 3.4 per cent to a median of $1.35 million in the three months to June,

Ray White Castle Hill selling agent Sara Perry told Domain that buyers saw value for money in the area. She also said government spending in the north-west was a major drawcard, too.

“There’s the train line, proposed hospitals, expansion of the shopping centre, new schools and a lot of unit developments,” Ms Perry said. “Buyers are also paying a premium to get into a particular public school.”

One interesting statistic, according to Domain data, is that the average number of people inspecting homes in July fell 17 per cent compared with July last year. However, more people inspected homes in July this year than a few months ago with the data also showing the average open-home attendance increased by 4 per cent during July compared with May this year.

Domain senior research analyst Nicola Powell said the number of people inspecting homes had improved once restrictions imposed by the pandemic were eased: “Open-home attendance may have declined year-on-year but we are seeing more quality buyers increase,” she said. “This health pandemic has stopped sticky beaking. You’ll struggle to find a sticky beaker who has no intention of buying.”

Thomas McGlynn, head of sales and chief auctioneer at BresicWhitney in Glebe, said the number of inquiries is still very strong but the appetite to move quickly or be extremely bullish in terms of pricing has definitely slowed in the past month.

“The volume of buyers might be down but the genuine buyers wanting to buy hasn’t changed that much. Those buyers are just not as forthcoming.”

Busy banks

Banks have been busy with a steady flow of finance applications from first-home purchasers and owners wanting to refinance existing loans. This has caused home loan approval times to take up to eight weeks extra as pandemic-related stresses on systems take their toll.

This comes as the value of new home loans that have been approved rose 6.2 per cent in June as the economy reopened following the first wave of the coronavirus crisis. However, according to Australian Bureau of Statistics figures, the value of new loans remains down on previous months with an accompanying $274 billion in deferred loan repayments.

Mortgage broker Chris Foster-Ramsay said banks have been overwhelmed with new work:

“Living expenses, income and verification of documentation is becoming much more serious and much more in depth,” he said. “The bottleneck is due to both the number of applications in the system … as well as verification over and above what is being done.”

“The banks will do what they need to do to keep the market stable,” said Adrian Kelly, head of the Real Estate Institute of Australia. He told The Guardian’s Martin Farrer that it is not in the interests of property owners, governments, lenders or his members for prices to nose-dive.

Kelly also said that business had held up well despite the extremely gloomy mood a few months ago. There had been no sign of the dreaded forced sales, he said, because of the fiscal stimulus and bank support for borrowers.

Economic outlook

Interest rates look certain to remain low after the Reserve Bank of Australia (RBA) responded to the pandemic by reducing official interest rates to a record low 0.25 per cent, while at the same time extending a line of credit to banks to help support small and medium-sized businesses. The RBA also bought more than $50 billion in government debt to protect the economy.

In its quarterly monetary policy statement released on Friday, the Bank maintained its forecast for the economy to contract by 6 per cent this year and cut its expectations for 2021 by 1 percentage point to forecast growth of 5 per cent.

“Reserve Bank of Australia research has noted that reductions in the cash rate typically increase property values over time, because debt becomes cheaper and purchasing capacity increases,” CoreLogic said.

Westpac's chief economist, Bill Evans, said the RBA highlighted the real impacts of the pandemic with the economy likely to be 7.3 per cent smaller in 2021 than if the coronavirus had not happened. He said with the RBA's deteriorating forecasts for unemployment, and inflation to still be around 1.5 per cent by the end of 2022, interest rates would not be lifted until at least 2023.

Commonwealth Bank head of Australian economics Gareth Aird said the government had to maintain financial support to offset the severity of the pandemic: "The fiscal tap needs to remain turned on to continue to support income in the economy in the face of such a significant contraction in spending and production."

RBA assistant governor Luci Ellis said the number of new household formations will likely fall due to the recession, adding that population growth has slowed noticeably. She also said that the poor jobs market would weigh on the decisions of couples who might have considered moving in with each other: "Weak labour market conditions will also discourage some people, especially young people, from forming new households," she said.

Residential rents have fallen to new lows during the COVID-19 pandemic, and while that’s good news for tenants, the downturn also comes with a silver lining for investors, according to News Corp’s James MacSmith.

“Rental searches on realestate.com.au are up 39 per cent over the June quarter. Data from those searches reveals that tenants and prospective tenants are looking more often and looking for longer.

“The volume of ‘high intent’ search activity on the site is up an incredible 75 per cent over the same period,” he said.

Shona Armstrong-Smith, Director and Property Manager at Century 21 in Bondi Junction, told MacSmith she has also seen these unusually concurrent factors of falling rent and rising search activity: “While we agree that the rent prices are falling we have still been very busy leasing properties.

“It is not a market that landlords or agents are used to but we are still managing to lease a lot of properties by listening to the market which is positive,” she said.

The future

For those wanting to predict the future, current statistical data would normally favour an optimistic viewpoint. Compared to 2019, housing finance has grown by 4.5 per cent as more money was borrowed in June this year than twelve months ago.

The Guardian’s Greg Jericho has advised a bit of caution should be used when viewing these figures: “For now, the housing market appears to be showing some resilience but the divergence in the growth of the value of home loans and the number being taken out cannot last.”

Investors have pulled back on their property purchases and the current market is being supported by people wanting to buy homes to live in. The value of owner-occupier finance in June was nearly 9 per cent higher than last year, while investor finance was 6 per cent lower.

CoreLogic’s Tim Lawless says the market’s been propped up against the pandemic but once government support is reduced the market will probably see a growing number of listings: “As stimulus measures wind down and borrowers taking a repayment holiday face up to their debt, it’s logical to expect a rise in distressed properties coming onto the market,” Lawless told Peter Vercoe of Bloomberg News.

“The extent to which this causes additional downwards pressure on home prices depends on how the Australian economy is travelling at that time. Further virus outbreaks present a clear and present danger to the depth and length of the recession, and the performance of the housing market.”

The ABC’s business editor, Ian Verrender, said that only a few months back, normally sober commentators were predicting a possible housing market crash, but now conditions have changed.

“While the only fundamental changes since then have been a deterioration in the US economy, where the pandemic now is out of control and jobless figures are back on the rise, and the worrying outbreak in Victoria, an air of optimism has settled over our economic prospects.”

Cladding update

A group of Sydney apartment owners has recently won a legal victory that should generate hope among all those owners battling to have combustible cladding replaced on their buildings. A major building company that had installed flammable cladding on four apartment blocks in Ryde lost its appeal against being forced to rectify the work and has been instructed to reach agreement with owners on a timetable for the remediation.

The Appeals Panel of the New South Wales Civil and Administrative Tribunal (NCAT) threw out an appeal by Taylor Constructions and Frasers Putney against an NCAT decision last year that the Biowood cladding it installed was combustible, posed an undue risk of fire spreading and should be replaced. It ruled that any fire spread via the external walls where the Biowood cladding is located could enter the building from the facade by windows and balconies from level to level.

“This is a precedent for Australia,” said the victorious owners’ lawyer, Faiyaaz Shafiq of JS Mueller & Co Lawyers. “This is the first reported case where a court or tribunal has upheld a finding that a particular type of cladding is combustible.

“The outcome of the case represents a win for owners’ corporations and sends another timely warning to builders and developers that use of combustible cladding is fraught with risk and carries with it substantial consequences.”

Lindsay Spencer, chair of the owners’ corporation of The Gardens at Putney Hill, developed by Frasers Property and built by Taylor Construction Group, said the owners and residents of the 148 apartments of the scheme were “pleased and relieved” at the verdict.

“We hope this decision now makes the situation clearer for others living with combustible cladding. Others’ builders have to look at it, and deal with it.”

Sources

‘CBA expects house prices to drop at least 10%,’ Clancy Yeates, Sydney Morning Herald, 12 August 2020

‘Sydney property bounces back,’ Australian Financial Review, 10 August 2020

‘Home loan approvals take up to eight weeks as COVID-19 crisis pressures hit banks: brokers,’ Tawar Razaghi, Domain, 6 August 2020

‘Sydney clearance rate holds steady as auction volumes rise during July,’ Kate Burke, Domain, 4 August 2020

‘Australia's housing market is showing some resilience – but here's why a fall could be on its way,’ Greg Jericho, The Guardian, 6 August 2020

‘Apartment owners win legal victory over combustible cladding,’ Sue Williams, Domain, 6 August 2020

‘Economy to rely on households and government for years: RBA,’ Jennifer Duke and Shane Wright, Sydney Morning Herald, 8 August 2020

‘Australian Housing Values Continue To Drift Lower, Falling 0.6% In July As The COVID Driven Housing Downturn Moves Through A Third Month Of Orderly Decline,’ Jade Harling, CoreLogic, 4 August 2020

‘Australia Home Prices Fall, With Risks ‘Skewed to Downside’, By Peter Vercoe, Bloomberg News, 3 August 2020

‘Housing values fall for third month in a row,’ Lucy Dean, Yahoo Finance, 3 August 2020

‘Housing market could still see major recession to come as coronavirus ravages economy,’ Ian Verrender, ABC News online, 3 August 2020

‘What a lack of stock actually means for home owners,’ Daniel Butkovich, Domain, 3 August 2020

‘House prices in Australian cities go their separate ways,’ Mike Cooper, Yahoo Finance, 9 August 2020

‘Safe as houses: hopes high that Australian property can avoid Covid-19 doomsday scenario,’ Martin Farrer, The Guardian, 1 August 2020

‘Open-home numbers down in Sydney as buyers stay indoors during COVID-19,’ Tawar Razaghi, Domain, 29 July 2020

‘House prices rise in Sydney’s northwest, defying broader downturn, figures show,’ Tawar Razaghi, Domain, 24 July 2020