Tuesday September 19 2023

A look at the spring property market in 2023

For our spring property market update, we sat down for a chat with the wonderful Kellie Landrey - principal Buyer’s Agent at Scoutable - whose down to earth approach to buying property and accessible and relatable market insights always leave us feeling more calm and informed (no wonder her clients love her). Of course, this interview was no different.


PF: Hey Kellie! Thanks so much for sharing your valuable property market insights with us again. So tell us - what is The Vibe™️ out there at the moment? What trends are you seeing?

KL: At the moment, there's a lack of supply, so, not a lot of properties to inspect and there's still enough buyers out there to make it feel like there's a strong demand. In terms of stock, it's still very much a two-tiered market, which was similar to the last time we had this conversation, and what this means is that the properties that are ‘ticking all the boxes’ are selling pretty strong and the properties that are a little bit weaker, or have some things ‘not quite right’ about them, are  struggling to sell.

But the overriding trend at the moment is that houses are performing better than apartments, there's still supply constraints but plenty of buyers out there looking to purchase - people are not afraid to buy at the moment, due to this recent recovery.

PF: We know you work pretty heavily in the Sydney market but you also have colleagues based in Melbourne. Would you say you’re seeing the same kind of things there? Or, is there something different happening in the Melbourne/Victoria market?

KL: Well actually, in Victoria they've announced a new land tax rule that will come into effect in Jan, 2024. It's called the COVID recovery plan and what they're doing is changing the minimum threshold for land tax on investment properties. So currently, the minimum land value you need to pay the tax on in Victoria is $300,000 and soon it will be $50,000. So, that means that pretty much anyone who owns an investment property in Victoria is going to have to pay this land tax.

This could potentially pull some investors out of the market that would otherwise be considering buying, but it's too early to predict the impact, i.e. is the cost just going to get passed on to the rental rate and things like that. Historically, the investor market in Melbourne has had lower yields than Sydney but that gap has started closing a little bit and rental constraints are starting to be felt more than they have in the past [in Melbourne]. Will this give us more properties? Or will investors stay in the market because they’re able to absorb this new land tax? We just don’t know yet. But this new COVID recovery plan is the biggest shift that’s happening in the Victorian property world at the moment and is expected to be in place for the next 10 years.

Outside of this, generally speaking, the Melbourne market is performing similarly to Sydney in that low-stock houses are performing better than apartments at the moment. Though of course, there are always apartments that buck the trend.

PF: The last 12 - 24 months have certainly been interesting for the property market - we saw that exponential price growth during covid, followed by a period of rapid interest rate hikes. Have you noticed any trends that have popped up as a result of either of these factors? And do you think they’ll stick around into the future?

KL: If we’re looking nationally, the peak of the market was in 2022 and since then, we saw values decrease, but also increase again. As of now, values have increased around 4.9% to the end of August, which means we’re down by about 5% from that 2022 peak, which was up around 9%. So, we've actually recovered almost half of the losses that happened during the interest rate movements, or during the ‘fall’ of the market. What is interesting is that the interest rate hikes have seemingly not dampened the market much at all.

Now these figures are for Australia as a whole and then you can obviously dive down deeper into what's happening in particular markets, but really, what's driving the recovery is net migration. So, this has increased since COVID times when nobody was moving around, and now there are a lot of people coming into Sydney and Melbourne in particular, which is helping to boost the recovery.

Another important thing to think about, and it is particularly true of the Australian property market, is that not everybody has the same level of debt and that actually, a lot of people have equity in their properties from price growth in the recent five year period. So, there are people buying and selling with a lot of equity, which is also helping to fuel the market.

PF: So, sorry to any First Home buyers reading this. That's a pretty hard act to follow…

KL: Yes, exactly. And then of course, as I said before, we have the supply issues. So, in terms of supply, we're still significantly down from what we would deem ‘normal’ averages. I think we're down approximately 20 or 25% of stock levels across Australia to where we should be, or where we have been in the past, and this is also fueling the market.

In terms of looking forward, are we going to still see the market accelerate? Is it going to plateau? What's going to happen? These are the big questions, right? So, I think the biggest factor that will drive things, conversely to what I said about the people who have a lot of equity, is that there is a large portion of the population that will have affordability issues and this is one of the biggest constraints to the market outside of supply. Now, you guys would know this better than me but I think home loans are getting assessed at, what is it, 8% or 9% at the moment?

PF: Yes, so mortgage assessment rates (the interest rate the bank uses to ‘stress test’ a loan) are up around 9% on average now, where previously, and in particular during that really crazy covid price boom, they were down around 5% on average.

KL: Yeah, exactly. So, given income levels and that higher rate of serviceability, lots of people just don’t have as much money to spend on property as what they've had had in the past, especially in the last few years. So, that could also impact how the market is going to accelerate. 

Until either APRA (Australian Prudential Regulation Authority) chooses to lower the assessment rate, or interest rates start to decrease, there's still going to be a constraint on the market as to how much people can spend on property. This, coupled with the issue of supply, will most likely determine how the market is going to perform moving forward.

PF: Interesting times indeed! So, we’ve now experienced eight consecutive months of property price growth, despite many actually predicting prices would decline in 2023. What are your thoughts? Do you think we’ve reached and/or passed the bottom of the market? Where do you see prices going? And, what would you say to anyone that is trying to ‘time’ the market?

KL: First of all - and as we always say - it is very, very hard to predict the market or to try and ‘time the market’ when purchasing property. And remember, property is not about short-term gain! But, if you're following the data, it is looking like the market is probably going to continue to increase sub 1% over the coming months and, if interest rates start to fall in 2024, there's indicators from past performance that it's going to accelerate even more than that percentage. So, if you're trying to time the market, and you think there's still a bottom to come, then you could completely miss the boat.

So, my main takeaway here is that it's not about predicting the market, it's about your budget, your lifestyle and how much you can afford to spend on a property and not overextending yourself. Also, not to look at selling a property within 6 or 12 months because that’s not the aim of the game here. Whether it's your own home, or an investment property, it's all about sitting there long-term and trying not to get into a position where you are forced to sell.

There will always be fluctuations in the market over the course of you holding the property and ideally, you don't want to put yourself in a position where you're forced to sell. Don’t overextend yourself and then if the market doesn't perform as well as you’d hoped, you’re not in a position where you have to sell and realise the loss.

But also, if there was a situation where you did want to sell your property at a time when the market was in a downturn and you were changing to a new property, then you're going to be buying and selling in the same market condition. So, if your property were to sell for a little bit less than you wanted, you'll still be buying a property for a little bit less than you needed to.

PF: There seems to be two main scenario predictions that have emerged for the property market over the next 12 months;

1. Another ‘hot market’ for sellers, with prices increasing off the back of population growth, rising rents etc. or;

2. More of a ‘buyers market’ with prices softening due to an increase in supply, driven by the lingering effects of high interest rates leading to an increase in ‘fire sales'

Where do you see things heading? In either of those directions? Or perhaps a third path? E.g. if they start cutting the cash rate in 2024, will that kick off another supercharged acceleration a la the covid period?

KL: Look, it's really hard to say because, prior to five years ago, we could have been having this conversation and I could have told you pretty confidently what the market was likely to do, based on the economic conditions. But, everything that has happened in the property market over the last five years has bucked the trends and this has really thrown a spanner into the works, in terms of predictions. I mean, everybody got it wrong…

If there's an increase in supply, we could see pricing taper off? But it really will depend on the supply levels moving forward into 2024 and it’s really hard to say definitively at the moment. However, what we do know is that right now, there is a higher stock level from this winter period than we've seen previously, but we're still struggling with significantly lower stock levels than we’ve seen in the past, during more stable market conditions. So, if there is more supply coming onto the market, it could change? But again, if interest rates start dropping in 2024, I would say it's probably going to kick off again.

We also have to look at APRA and what they’re doing, i.e. are they going to move the assessment rate? Because that's what really fueled the market during COVID, the lowering of the assessment rate. That and also everyone couldn’t do anything else except think about where they were living…

So, we have to consider supply and serviceability, but also buyer confidence or ‘market confidence’, as well. If everyone thinks that they're going to miss out, then that will also fuel the market and it can be very much media-driven in that component. So, market confidence, supply, and serviceability are going to be the three key things to keep an eye on in terms of what's going to drive the market moving forward into next year. I think that if interest rates start to drop within the next 12 months, and we're at the same supply levels, then the market is going to increase at a faster rate than it's increasing now.

PF: And finally, what are your top 3 tips for those looking to buy this spring season?

KL: My advice would pretty much be the same as what I always say, which is: 

  • See as many properties as you can and do your research, so you can set realistic expectations around price (you’re not going to get a ‘bargain’ but you also don’t want to overpay);
  • Don’t buy a property because you’ve got a fear of missing out if it’s not the right property for you;
  • Consider your budget and don’t purchase beyond your means;
  • Be prepared and pre-approved! (This way, if you find a property you like, you can do all your due diligence quickly and go in confidently, either bidding at auction or by making a pre-auction offer)

And my overriding takeaway is that there will always be another property. From my fifteen years of doing this now, I can guarantee that if a particular property you love goes beyond your budget, don’t worry, there WILL be another one. And this is particularly important to keep in mind when it comes to buying investment properties.

Just have your strategy, your own plan that’s right for you and try to quieten all the media ‘noise’ and unsolicited advice from people around you (i.e. your parents, aunts and uncles, friends - whoever). If you’ve done your research, you know your budget limits and you’re not going to overextend yourself and you’ve got a plan to hold long-term - then you can’t really lose money.

PF: Excellent advice Kellie! We couldn’t agree more.

Buying a property at auction? Kellie and Brendan shared their auction-winning secrets in the AFR. Get their secrets, here.

The information provided in this article is general advice only, and doesn’t constitute personal investment and/or financial advice. You should always reach out to us, or seek personal financial advice, before making any financial decisions.

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