August 2019

This is the 16th in a series of articles summarising monthly news and happenings in Sydney real estate, and more broadly.

It’s not a boom

Although the end of month Core Logic public monthly housing update wasn’t available at the time of writing, a summary was published on the second day of spring which reported that national dwelling values have increased by 0.8% over August, and that this aligned with the increases in auction clearance rates and interested buyer numbers over the last few weeks. The ABC reported on this with some fanfare but were careful to note that “analysts caution August’s sharp bump is not necessarily the beginning of a fresh boom”.

Looking back over the last few weeks, at the beginning of the month, The Real Estate Conversation reported on CoreLogic findings that the number of new market listings has fallen dramatically over the last few months. With spring around the corner, and the likely upswing in new listings that this entails, all eyes will be on this barometer of vendor confidence.

Attribution:  CoreLogic

Later in the month, REC reported that the last full weekend of August had increased auction clearance rates in Sydney and Melbourne again. REC quotes REINSW President Leanne Pilkington, saying there was “nowhere near enough” buying options to satisfy current demand.

“Last weeks open home attendances were up 42 per cent, clearly demonstrating that buyers are back in the market,” she said.

“We just need some sellers to join them.”

Sydney’s preliminary clearance rate for the last week of August was 84.7% from 500 auctions – apparently the highest percentage since Feb 2017 – and the previous week (ending 18/08) clearance rates were 76.2% for 446 auctions. However, again, the volume of properties sent to auction was significantly lower.

There is some conjecture around whether the recent upswings in the property market are a positive mini bubble (or ‘pop’), absorbing a pent up demand. Stephen Letts, writing for the ABC asks whether the upswing is sustainable, and delineates the difference between pop and bubble. In a similar vein, The Real Estate Conversation reports that the Housing Industry Association’s latest quarterly outlook predicts a market when new home construction (sooner rather than later) meets, rather than exceeds, population growth, and that overall this will be an asset to the larger economical outlook.

HIA’s Chief Economist Tim Reardon summarises it thus (note there is a lot of ‘ifs’ in this):

“If economic activity improves, the credit squeeze dissipates, home prices stabilise and the recent stimulus measures take hold, the supply of new work into the pipeline will soon reach its low point.

“All indications are that this stabilisation will occur and prevent a more significant downturn.

“This new equilibrium will see the number of new homes remain around 180,000 per year, not in excess of the 200,000 that have been built each year, for the past five years.”

Attribution:  CoreLogic

On the subject of equilibrium, Victor Kumar, writing for The Real Estate Conversation says it’s a furphy; that the market is only ever going up or down, so whether the HIA is dreaming, presenting a positive spin, or correct in its assessment is perhaps something only time will tell.

One hope of the downturn was that it might have improved affordability. So did it? Cameron Kusher from Core Logic reports on how the percentage of dwellings at the most affordable end of the scale has – or has not – changed. In the part of the article where he focusses in particular on the Sydney market, Kusher states, “Over the 2018-19 financial year, 2.3% of all house sales in Sydney were below $400,000 compared to 2.0% over the previous financial year indicating a slight increase.” Units fared similarly with 5.7% of all sales below $400k, whilst in the year previous it was 4.4%. The final point he makes is that as a result of 2 rate cuts and APRA’s changes to the serviceability floors, next year the expectation would be that this percentage will begin to again drop.

Just saying what we’re all thinking

Steve Waters writing for The Real Estate Conversation says what undoubtedly a lot of people are thinking about the Opal Towers et al construction quality fiascos. Waters compares these quality problems to some inner city 100+ year old buildings, pointing out that the later are better engineered and built by craftsmen (presumably as opposed to labourers). To be fair the engineering involved in producing a 36 storey building is a LOT different to producing a <5 storey building. “the quality of everything – from political discussion to offshore-manufactured toys – is falling” he says, and construction standards is included in the ‘everything’.

Regarding the Opal Building, so far the restoration works by the builder have clocked up an eye watering $24M in order to get things on the up and up, especially when one considers that a paltry $1M was originally set aside for such things. As at this writing, 15 residents are still in temporary accommodation. 8 months later. Hopefully they will be completed soon and important lessons can be learned.

Tainted? The Opal Tower