The incredible rate in which house prices are rising in Sydney is a hallmark of two contrasting variables: strong demand, and low stock levels. Competition among buyers for limited listings across most of Sydney is putting significant upward pressure on prices.
The impact of COVID 19 certainly did accelerate what we are currently experiencing, however it has been building for some time. In 2019 the average length of time an Australian held a house before selling was 11.3 years (12.4 years in Sydney specifically), compared to 2009 when it was 7.5 years – an increase of 3.8 years.
But why are stock levels low, and what is contributing to this?
The reality is, there are a multitude of factors which vary from region to region. There are however a few consistent reasons, of which many prospective buyers in the current market will be experiencing as barriers to securing a property.
High demand owner-occupier localities
High owner-occupier demand areas such as Sydney’s Northern Beaches are experiencing a surplus of buyers, and sky-rocketing medians across suburbs of all price-points. Whilst this may appear great for someone selling their home, the consequence is that if they do desire to buy somewhere in the same locality after the sale, they will be competing in the same market, with the same rapidly increasing property prices. This makes it undesirable for people to sell if they want to stay in the same locality, simply because they will be experiencing themselves the challenge of rising prices and immense buyer competition upon their transition to purchasing their next home.
Selling off-market
An estimated one-third of all sales have been off-market in the last 12 months. An off-market sale is when the property being sold is not listed on the real estate portals, and the property is promoted directly from the agent, and at times directly the homeowner.
Vendors will utilise this method of selling to avoid the high-costs associated with selling their property through an agency, particularly during a time of uncertainty or when they are unsure what price tag their property would attract. In the current market, vendor’s recognise that many qualified buyers are willing to pay a reasonable price to acquire a property without going through the public channels and the competition that currently comes with this.
As a result, listings are kept very low and this is represented in the scarcity that buyers are seeing when they are looking for a property to purchase.
Preference to buy and improve
Renovating a home is largely becoming a preference for buyers to invest a similar or lesser amount of money to improve the home they currently live in. Government incentives such as the Building Bonus have also encouraged homeowners to take on larger renovations as an alternative to selling and buying to upgrade.
High costs to buy and sell property
Stamp duty – the tax paid on the purchase price of the property often serves as a disincentive, particularly in Sydney when property medians are so high. If a homeowner sells the house they are living in, they need to buy; and if they choose to in Sydney, the cost outlay associated with this can be a deterrent. We see this issue acknowledged by the NSW Government’s recent initiative to implement stamp duty reform, in favour of a land tax. Whilst costs are still involved, the purpose of this is to provide options to reduce initial outlay when purchasing.
COVID-19
There is still an element of uncertainty which is holding a lot of vendors back from listing their property. Despite the worst seemingly behind us, this will continue as some homeowners opt to side with caution until the effects of COVID-19 are well and truly in the past.
Summary
Low stock levels are the result of a variety of influences, most of which will be constant for the foreseeable future. Understanding these provides context to the challenges in which buyers are currently experiencing.
Navigating this can be a challenge for many buyers and doing sufficient due-diligence and research is extremely important to make an informed decision. Successfully securing a property in the current market requires a buyer to have a dedicated strategy underwritten by speed, research, networking, and preparation.
Looking for assistance to source and secure a property? Call Marcus at Purple Avenue on 0448 881 254.
Looking to learn about the Northern Beaches Property Market? Join us on Wednesday 24th of March from 8.00pm – 9.00pm for a Facebook Live.