Current Market Insights
The Current Market Insights Podcast is brought to you by Harris Partners Real Estate.
Understanding the property market can be a challenging thing, with highs and lows, twists and turns. The media and agents tend to spread the news they want you to hear, with the advice they want you to follow.
Current Market Insights is an unbiased look into what is happening, what tips you can use to buy, sell, or rent, and that you wont find anywhere else.
Current Market Insights
2GB Property with Trent Nikolic
This week Peter explores the evolving real estate market, examining key trends and insights as we wrap up 2024. With an emphasis on the impact of interest rates, evolving buyer preferences, and market performance, we discuss predictions for 2025.
• Examination of the year in real estate, highlighting two distinct halves
• Growth in property prices with variations across segments
• Significant increase in cash transactions, especially among baby boomers
• Shift towards older apartments due to concerns regarding new constructions
• Importance of strata reports and changing buyer behaviours
• Analysis of market stock levels and their implications for buyers and sellers
• Monitoring of rental market pressures and tenant resistance
• Discussion on political influences affecting housing demand and availability
• Predictions for how market dynamics will evolve in 2025
As always if there is a specific topic you would like for us to cover, please reach out and let us know!
Now. We spoke to you last week about how the real estate market may not quite be in the kind of hibernation that you would think at this time of year, but there's still a lot going on. But it has also wound down a little bit. So we're going to have a wrap of the year with Peter O'Malley from Harris Partners Peter's in the studio. Thank you for coming in, mate 2024, I think has been a busy year, it's fair to say, for you, and we were just talking off air about how the wrap-up for this year might be a little bit different to the start of next.
Speaker 1:Yeah, thanks, trent, great to be with you. It's been a year of two halves. The first half of the year clearly favoured vendors and that was the case because the marketplace thought it was going to get rate cuts. Where that talk originated from, I don't know, but there was definitely impacting on buyer behavior, where they were factoring in rate cuts right up until about June. And then it became obvious that the RBA had no intention of cutting rates anytime soon and fundamentally rates are at a restrictive setting. So, slowly but surely, no crash. But they did put downward pressure on property prices. Stock levels were up in the second half of the year, making it a little bit tougher for vendors to get a sale, and a vendor had to meet the market in the second half of the year in order to transact those vendors. Achieving a premium over the market price tended to not happen as much in the second half of the year.
Speaker 2:It's interesting that the housing market, as you said, rose 5%. Can you easily pinpoint where some of that growth is, or is it just broadly across all sectors?
Speaker 1:No, there's segments of the market that outperformed, that probably did better than 5%, and that was the prestige market that's been impervious to the interest rate setting of the day since COVID.
Speaker 2:I suppose if you've got that sort of money, it just doesn't matter. Right, that's right.
Speaker 1:And PEXA, who do all of the settlements up and down the eastern seaboard of Australia, report that one in three transactions are mortgage-free. They're straight cash transactions.
Speaker 2:One in three.
Speaker 1:Yeah. You wouldn't think it's that high, but it is. And that's baby boomers, downsizers, selling the family home and buying for a cash purchase and pocketing the rest for their superannuation.
Speaker 2:One in three is staggering to me. Like you said, you wouldn't think it's that high. I suppose it's a generational thing, though right, because you talked about baby boomers. You get to a point in your life where you do sell the house, you downsize, but one in three is huge.
Speaker 1:It is. It's a surprising stat and it helps explain why interest rates didn't have the immediate impact on the property market that everyone initially feared. And it was much more difficult for the RBA to get things under control because there's so much cash and wealth in our society.
Speaker 2:You've got some notes here too about growth of older style apartments. That's interesting too right, because there's a bit of a, I guess, a sentiment, and I notice when I speak to people. They seem to be more comfortable buying something older than something that might have been built 10, 15, 20 years. They're happy to buy something older. Is that a fair comment to make, that there's this real sort of confidence that comes from buying an older building?
Speaker 1:That's more than fair. The expose on the strata sector and the poor build quality that's been allowed to take hold in Sydney over the last decade has hurt that segment of the market and buyers phone in and say, look, we want to buy an apartment, we're not interested in anything with gyms, lifts, pools, flammable cladding. Flammable cladding and having to replace that has been a big issue. There's 446 buildings in new south wales that had to undertake the removal and replacement of flammable cladding yeah so buyers understandably either want a discount on that product or they don't want to touch it at all.
Speaker 1:Hence the winner in the mark in the apartment market was that um older walk-up style apartment so is that the sort of thing that in the inner west you see them everywhere?
Speaker 2:I live in the inner west. You see those sort of beautiful old 1930s, 1940s style apartment blocks that might have six, eight. That's what we're talking about that kind of older, back that far?
Speaker 1:Yeah, that's more of an Art Deco, is that?
Speaker 2:what you're referring to, a Summer Hill Art Deco apartment Ashfield.
Speaker 1:Yeah, buyers like that product there's no doubt about that because it's low drama. It's low strata rates and it's low drama but even going into your 60s, 70s and 80s build aesthetically and architecturally. They're not going to win any awards, but they're good product to get an entry point into the market or as an investment play, knowing that you're not going to be spending $4,000, $5,000 a quarter on strata levies. And that's what some of these modern buildings are drawing off the owners at the moment.
Speaker 2:Is that something that people who want to buy are actively talking to you about now that they weren't before? So what I'm asking is whether you speak to a customer now who says I don't want to pay that strata fee, whereas maybe five or 10 years ago that was an afterthought and you just bought and then went. Oh well, the strata fee is whatever it is.
Speaker 1:Before you purchase. Some people will buy blindly and that's dumb play. Before you purchase an apartment or a townhouse you must read the strata report and it's legislated there that the funding of that building is outlined and the gremlins that are in the system will become evident in that strata report. And what inevitably happens is the vendor needs to factor that into their price if they do have $4,000 or $5,000 a quarter strata because there's so much maintenance taking place.
Speaker 2:Stock levels across all price points and locations surged, and the way that you would see that, I guess, is that that gives buyers a choice, because there's obviously more out there and you're not rushing around. How does that play into a market that desperately wants interest rate relief, because we may not see that into next year as quickly as we'd like?
Speaker 1:either. A symptom of a slowing market is excess stock, and a symptom of a strong market is a lack of stock. So what that means for vendors that are coming to market in 2025 is they must be aligned with the market price. If not, the market will leave them on the shelf and stare them down Right, because the market can afford to do that. When there's choice In a rising market, a vendor can overprice and buyers will still play at them because there's not alternate options in the marketplace.
Speaker 2:Yeah, okay. And if we don't see rates come down quickly into 2025, even though the rates are higher, does that make it more effective to be a buyer than a seller at that point? Because the actual price of the property will come down.
Speaker 1:The auction clearance rate in Sydney has been sub 50% since August Wow that's quite low, isn't it?
Speaker 1:That's right and that's another stat that a lot of people aren't conscious of. Walking around, you know transacting in the market at the moment. So the mistake is the trend is unmistakable. At the moment the market is pulling back in Sydney. It's not crashing, but prices are under pressure and that trend will not break in a positive sense for vendors until the RBA cut.
Speaker 1:And the longer it takes for the RBA to cut, the more underlying damage they're doing in the market. Because if you've got to sell your home due to mortgage rate pressure, interest rate cuts after you've sold out at a price you're unhappy with don't help you. If you're a small business owner and you lose your business due to current market conditions, interest rate cuts don't help you after the fact. So the longer it takes for the RBA to cut, the more damage that will do to the underlying economy and market and the longer it will take for the market to bounce back. But everyone's got a view on this. I think the RBA will actually cut sooner than we realise, in 2025, for the points we've just discussed.
Speaker 2:Interesting message from Steve too. Morning boys. I work in consultation and aim post-tension stressor. I wouldn't buy a new unit. That's what Steve's saying, so there's a bit of a sentiment out there. Based on that, you know the study that you were talking about.
Speaker 1:There's an absolute sentiment out there and where that's in conflict with Trent is what Chris Minns' message is, which he wants more apartments and as a real estate agent. We're on the ground and we're meeting people like Steve every day saying I wouldn't buy a brand new apartment. It's like that's slightly problematic because Chris Minns wants to build a lot of them.
Speaker 2:And if he builds a lot of them, we've got to sell them. Someone's got to buy them. Speaking of that buying and selling, and specifically buying in terms of if you're buying it as an investment, what are we seeing or what do you think is going to happen for tenants? Because we've gotten to the end of a pretty tough period for tenants. How does 2025 look?
Speaker 1:We are seeing a max out point at the moment for rents, where tenants can't quite bear it any more increases. So anytime property managers look to dial a rent up further from here, there's real resistance from tenants. We're early in the cycle. Tenants accepted that it was in an upward swing, so there's an affordability ceiling there. And then the other thing that's starting to pop up in rent rolls is a little bit of a rears where the higher interest rate setting of the day and the slowing economy is spilling over into tenancies as well. So I don't think the rental market will crash, but we have definitely seen a moderating in the price growth in the rental market in the second half of the year.
Speaker 2:It's fair to say that it's shrunk overall. Right, but we seem to have this constant argument at a political level not enough property to have this constant argument at a political level. Not enough property. Rent's too high. Tenants are struggling. People can't find a place to live On your side of the ledger when you're actually there at the coalface with properties. How accurate is the assessment?
Speaker 1:that we see at a political level. There's a couple of things driving it. The immigration policy is too strong, so there's too many people coming into the marketplace for dwellings available. Because of the interest rate setting of the day buy and hold, investors are not entering into the market and existing landlords are selling investment properties off to protect the family home rather than sell the family home, as you would understand. So what is happening overall is the rental market is shrinking at the same time that it's copying a demand shock.
Speaker 2:Right, okay, yeah, so that actually then gives it that kick at the same time. Just a quick update from the press conference that Joe Halen just had the 360 train service cancelled today and delays of up to an hour. So that's the 360 train service cancelled today. Delays of up to an hour so that's the 360 train service cancelled today. Delays of up to an hour. Um, so we heard our man at the union say that trains run 15 minutes late regularly earlier today. Well, that one will be running an hour late today, not 15 minutes. So that's from joe ayland's press conference. Um, we were speaking off air, uh, peter, about where we think. We were speaking off air, peter, about where we think 2025 might go. It would appear that if you're keeping the interest rates up at a certain point, you're attempting to push the market down, bring prices down. Is that a simplistic view or is that where we're at at the moment?
Speaker 1:No, that's exactly where we're at at the moment. So Sydney and Melbourne are both falling at the moment with their property markets. Both Sydney and Melbourne are both falling at the moment with their property markets. Melbourne is falling a little bit faster than Sydney because they've got some land tax restrictions there that are squeezing landlords into the market earlier than they would have liked. Brisbane and Perth are in strong upward swings, but when you've got Australia's two most populated cities both with falling housing markets, that tells you that the interest rate setting of the day is doing what the RBA wants it to do. They would have been bemused through 2023, where they were trying to push interest rates up and contain inflation, but the property market was rising at a faster rate than inflation, meaning people were just refinancing against the newfound equity in their home to continue their lifestyles as they were. We're not seeing that happening at the moment, where the property market in Sydney and Melbourne is now underperforming the inflation rate.
Speaker 2:Right, okay, and that's likely to keep going through into 2025. That's right.
Speaker 1:I personally don't believe the downward trend that property prices are facing at the moment will break until the RBA start cutting rates.
Speaker 2:Peter, there's a mountain of stuff we could talk about here. Thank you for coming in on your Saturday, mate, and it'll be really interesting to see where we go into 2025. But thank you for taking the time to have a chat.
Speaker 1:Pleasure Thanks.
Speaker 2:Trent, Thank you for coming in mate.
