Issue 28 - 2022
IN THIS ISSUE
- How’s the Market?
- Win-Lose Transaction
- Are you Being Bated?
Property Market Stock levels and fixed – home loan rates are up!
The property market in the first quarter of 2022 saw listings up and sales volumes down when compared with 2021 numbers and trends. Property prices have stopped rising across the board. There are still sales that exceed all expectation; however this is now the exception rather than the norm. The power balance between buyers and sellers is much more balanced than it was during the 2021 boom.
Whilst a lot of talk centres around ‘will the RBA raise interest rates?’, ‘when will they raise rates?’ and ‘how many times will they raise interest rates?’ the main story is being overlooked. The retail banks are actively raising their Fixed Home Loan rates now! During 2021, consumers were enjoying Fixed Home Loan Rates under 2%. We are close to the average Fixed Home Loan Rate being at or above 3%. In percentage terms, that is clearly a big shift.
Whether someone is buying or selling in the current market, it is wise to acknowledge the role rising Fixed Home Loan Rates is playing and will continue to play in the property market.
Stock levels
Buyers are relieved to see higher stock levels in the market in 2022. The turnover of properties is consistent, albeit not in a frenzied fashion. Many properties are experiencing one or two genuine bidders as opposed to the three to five bidders that most properties enjoyed when mortgage rates were lower. A genuine bidder is defined as someone who is willing and able to pay a fair price for a property, not someone duped into bidding by an artificially low price guide.
For those looking to buy and sell in this market, the equation has shifted slightly. Instead of selling for a record price and paying a record price, the current market suggests you may sell for a slightly lower price than originally hoped for. However, the same dynamic will be reflected in the purchase price.
Discretionary sellers
Discretionary sellers are those that will only sell if they get a certain price, need to look closely at the market to see if their target price is attainable. Certain pockets of the market are still performing very strongly. Other segments of the market are oversupplied with stock which is putting downward pressure on prices.
Investors looking to sell
It’s worth noting that the market gains of 2021 are merely paper gains, up until the point the property is sold. If, and when the RBA eventually do raise rates, property prices could face further pressure. Given property prices rose so sharply on the back of ultra-low mortgage rates, then it should come as no surprise the boom may be unwinding on rising mortgage rates.
Property prices for houses, apartments and townhouses are comfortably higher than they were 18 months ago, providing many owners with strong equity. A modest correction after such a phenomenal boom should not be seen as negative, rather a consolidation phase in the market. Price rises are only positive to the degree that they can be sustained by the market.
Property Market – Rents
Rents became a political issue during the March Federal Budget as many people faced an increasing rental market at a time of an increased cost of living. From a landlord’s perspective however, rents are still below the pre-pandemic levels. Landlords were one of the most negatively impacted segments of the property market during COVID and many need to increase their rental income to make the sustainability of the investment property viable. Many landlords have faced rising costs at a time of reduced income over the past 2 years. Thousands of apartment owners have also been slapped with special levies for building repairs and or replacement of flammable cladding.
Rising rents and soaring inflation on consumer goods occurring at the same time will be a central issue in the May Federal Election if the Budget debate was anything to go by.
The property market road ahead …
In the first quarter of 2022, floods, inflation, the Ukraine/Russian War, geo-political tensions, rising mortgage rates and supply chain issues all came to a head.
The property market performed quite well given the multitude of challenges it faced in Q1. Going forward, the market will face a Federal Election, possible change of Government, a predicted spike in COVID numbers over winter and an expectation that the RBA will move on interest rates after the election.
The RBA will be hoping that the very low unemployment rate will see wages rise to help offset the inflation taking hold.
Whether one is buying or selling, it is certainly an interesting time to be trading.
In a rising market, vendors can over price with minimal risks in doing so. However, in a stable or falling market, over pricing often leads to underselling. The opposite is also true, if you price at market price, you increase the chances of selling above market price – even if the market is falling or flat.
Vendors who list above market price often languish on the market unsold and inadvertently turn the best buyers off their home. Many home buyers are reluctant to step forward on a home that has gone stale in the eyes of the market.
“If you price at the current market price, you increase the chances of selling above market price”.
Pre-internet, the vendor that deliberately overpriced and waited for someone to ‘pay my price’ had fewer downside risks in doing so. In the digital age, the advertised history is now on record for all time.
Every property has a digital footprint. Buyers can easily access the advertised history of properties. If your home is overpriced and unsold after a lengthy sales campaign, the educated buyers have been gifted crucial information in the negotiation process.
The auction system does not offer vendors protection from a failed campaign either, given the true auction clearance rate has plummeted to 50% in the first quarter of 2022. In 2021 when the market was rising rapidly, the true auction clearance rate was consistently around 85%.
Buyers are more accepting of genuine buyer competition than they are of a vendor who is blatantly trying to ‘beat the market’. There is no sales method that provides vendors with a magic bullet. Understanding the current market value of your property is the key to a timely sale at the best possible price.
Understanding the current market price of your property is simple in theory but challenging in practice. Putting a market value on something that is emotionally precious to you is difficult. The ultimate benefit in understanding fair market value ensures that you don’t reject the best buyer/offer.
Establishing Fair Market Value
During the agent interview process, whenever an agent suggests a price for your home, insist the agent demonstrates the sales evidence they used in determining the price of your home. Ask yourself, does their logic stack up? Is their thinking likely to be accepted by genuine buyers in the marketplace?
Independent valuers are excellent alternatives to establishing unbiased yet educated sources as to the fair market value.
Once you have established fair market price for your home, you need to ask whether that is an acceptable price to you. If it’s not, you may be best not listing on the market at all. A failed campaign can haunt you in the future.
Fair market price often creates buyer competition. Sellers want to negotiate but buyers want to buy. The best way to attract the best buyers is to price accurately and fairly. This maximises the number of bidders for your home ensuring a win for you. Buyers are more accepting of genuine buyer competition than they are of a vendor who is blatantly trying to ‘beat the market’.
For more information on accurate pricing, take a look at our previous report.
How to avoid the humiliation of losing at a public auction.
Bait pricing by real estate agents is rampant, of this there is no doubt. As a buyer, to see a property promoted with a Guide of $2.2 million sell for over $2.7 million can be both disheartening and confusing. Is the market really that strong (some people said it was coming off) or were you misled?
That’s the question many unsuccessful buyers are asking themselves as they leave auctions defeated and disheartened.
To invest money, time, and emotion on a property that you were never a chance of securing, stinks. Alternatively, if the market is really paying $2.7 million for a property worth $2.2 million, then the boom of 2021 has accelerated even faster into 2022. Clearly this is not the case. The reality is, most buyers are bidding at auctions on false pretence. False pretence because the “owners have no intention of selling for the price the agent is quoting to the buyers”.
Bait pricing is usually described in a sanitised fashion as ‘underquoting’. Make no mistake though, buyers are being baited into bidding at auctions by artificially low prices.
As a buyer venturing into the marketplace, remember this point – the auction system cannot work without bait pricing. Since dummy bidding became outlawed, bait pricing became the replacement strategy to fuel the auction with multiple bidders. If your offer on a property is going to be unsuccessful, find out prior to the auction to avoid the humiliation of missing out in front of a crowd. Refuse to play the game.
Submit your best and highest offer to the agent and state that you will not be attending the auction. Send a copy of the offer to the vendor’s lawyer to ensure the offer makes it all the way to the vendor.
Just because the owner wants to go to auction, it does not mean you have too. Don’t take the bait. As a home seller, if you feel uncomfortable with your agent promoting your home for a price significantly less than you are prepared to accept, you should be.
