February 7, 2024 • 23 mins
Join us for the latest review of all things Sydney Property with my friend and co host, Mr. Peter O'Malley. Together, we navigate the choppy waters of interest rates, global influences, and the Reserve Bank of Australia's cryptic cues. This episode isn't just a talk; it's a treasure map to understanding the underlying currents that could steer the property market's future. Whether you're a homeowner on edge or an investor with an eye on the horizon, you'll emerge with a keener sense of what's at play in the world of real estate finance.
Step into the auction arena as we dissect Domain's latest clearance rates and square them off against SQM Research's historical insights. The scene is set with a juxtaposition of fierce bidding wars and lackluster listings, where strategy is king and the market's mood swings might just catch you off guard. We strip down the selling game to its core, debating the merits of public auctions versus private treaty sales, and how the RBA's potential rate moves could send ripples through your investment portfolio. Join us for this candid conversation that could very well shape the way you think about buying and selling in today's market.
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Transcript
Episode Transcript
Available transcripts are automatically generated. Complete accuracy is not guaranteed.
Speaker 1 (00:00):
All down, all silent, going, going, going.
Go on, stop the black noise.
Speaker 2 (00:07):
Welcome to the Current Market Insights podcast
brought to you by HarrisPartners Real Estate.
Each episode we chat with realestate author and industry
leader, peter O'Malley, todiscuss the current property
market conditions and provideinsights to assist you on your
property journey.
Speaker 3 (00:30):
Hello and welcome to another edition of Current
Market Insights.
I'm your host, kieran O'Brien,and, as always, with me is my
good friend, mr Peter O'Malley.
Peter, hello, good to see you,kieran, good to see you, peter.
Big day in Sydney Real Estate,I think with the RBA meeting
earlier today, and I thoughtwe'd start the show just by
getting a bit of a wrap up ofwhat the RBA had to say, what
was in their statement andreally what it means for us at
(00:53):
the moment.
Speaker 1 (00:54):
Well, the line that's captured the most attention,
kieran, is the board needs to beconfident that inflation is
moving sustainably towards thetarget rate.
The path of interest rates thatwill best ensure that inflation
returns to target in areasonable timeframe will depend
upon the data and the evolvingassessment of risks, and further
(01:14):
increase in interest ratescannot be ruled out.
So that's counter to what themarket was looking for and
that's clearly the RBA stampingon enthusiasm in the economy and
society that rate cuts areimminent and the RBA saying not
so quick.
Speaker 3 (01:32):
Do they give any indication of what they mean in
terms of time frame?
So, when they say they need tofeel confident that inflation is
trending toward the target orwhatever it may be, is that
something that they willreassess in a month, or is this
more likely to be a three or sixmonth kind of scenario?
Speaker 1 (01:47):
Well, look, they don't put a time frame on it.
What they say is that returninginflation to target within a
reasonable timeframe remains theboard's highest priority.
And the reality is that, whilstthe trend for inflation has
turned in the RBA's favour, theydo say clearly in this
statement that it is still abovetheir target range.
(02:07):
Not only do they want theinflation rate within their
target range, they want to beconfident here and that it's
sustainably within their range.
Now, getting ready for our chattoday, I read the RBA statement
as we've just gone through, butI also read Jerome Powell's
statement as well, because hegave a very, very similar
(02:30):
message to the American peopleduring the week, and I found
both the RBA and Jerome Powell,the Federal Reserve Governor
there, used the same phrase.
Essentially, powell said thatthe Fed needs more time to
confirm that inflation is movingdown to 2% in a sustainable way
(02:52):
.
So there's that word againsustainable.
So what both central banks aresaying to their respective
constituencies we don't want tobe on track to meet target.
We don't want to get to targetand then see it bounce due to
global concerns.
We want to be confident thatit's sustainably under control,
because there's no point goingthrough the pain that we have as
(03:16):
a Western society, taking onthese interest rate rises and
the higher costs get to withintarget, cut interest rates and
then do a rinse and repeat whereinflation takes off again.
So really interesting.
I think that you're seeing alot of signalling and a lot of
cohesiveness between themessaging from central banks.
Speaker 3 (03:35):
Yeah, I find it interesting.
I get the impression that theRBA won't want to hedge their
bets a little bit and just playit a little more cautious this
year than they have done lastyear, particularly with their
messaging, knowing the flow andeffects it has.
But it also says to me thatthey think maybe this dip in
inflation in this first January31 reporting is perhaps not
(03:55):
indicative of the broaderinflationary picture and that
there really is a bit morevolatility or uncertainty to
come before, as you say, wereach that point of stability in
the market.
Speaker 1 (04:05):
Well, in recent weeks we've discussed geopolitical
and what role that plays in theRBA's thinking, and it's in the
statement today.
Kieran, you're 100% correct.
They say quote unquote.
There also remains a high levelof uncertainty around the
outlook for the Chinese economy,the implication of the
conflicts in Ukraine and theMiddle East.
Domestically, their uncertaintyis regarding the lags in the
effect of the monetary policyand how firms, pricing decisions
(04:28):
and wages will respond toslower growth in the economy at
a time of excess demand.
So you're absolutely right, theRBA are watching all of this
and they're not satisfied thatthe economy or the property
market need a rate cut.
Speaker 3 (04:44):
I find it interesting and I'd love to get your
thoughts.
In the week before, so justlast week, I read some articles
talking about smaller lendersfactoring in rate cuts to their
fixed rate mortgages inanticipation of a RBA
announcement.
Do you think that thisannouncement of a good
inflationary outlook, a hold onrates, is going to have an
impact on mortgage rates, and doyou think some of the bigger
(05:05):
banks may start to preemptively?
Speaker 1 (05:07):
cut.
Well, if we're talking fixedrates one, two, three year fixed
rates it's understandable theymight shave a little bit off
there to be competitive in thatspace.
So what we're talking abouthere today, Kieran, is that the
market and some economists werelooking for a rate cut somewhere
around the middle of the year,and it's looking like there
(05:30):
won't be a rate cut based on thecurrent trajectory until Q4
this year, or even early nextyear if things remain resilient.
Speaker 3 (05:40):
I think that does align with what we said at the
end of last year.
If you recall, most of thepredictions, including from
Louis at SQM, was that the firstrate cut would likely come
around November of this year andit seems that we're holding on
that track at the moment.
Speaker 1 (05:52):
And the four major retail banks have all got that
assessment September to Novemberfor the first rate cut, where
many economic commentators inthe media have suggested they'll
need to go a little bit earlier.
In fairness, the money marketsare also suggesting that the RBA
will be forced to cut earlier.
In our February newsletter wedid make the comment, Kieran,
(06:15):
that it will be interesting tosee if home buyers bake rate
cuts into their buyer behaviourwhen they're bidding on
properties this year.
And that just goes for everyoneelse that's operating in the
economy, and I think thestatement today from the RBA is
designed to kill that attitudethat could creep in.
There's rate cuts coming.
(06:36):
Let's go out and spend asthough we're going to get a rate
cut in the next few months andget in front of the market.
The RBA are taking that excessconfidence that might be
building in the commentary away.
Speaker 3 (06:48):
You know.
Interestingly, Peter, only thismorning I had a conversation
with someone who said they wereexcited for 2024 because they
should see their mortgage ratecome down by a couple of percent
and I thought to myself gosh,that would be nice, but it's not
very likely at this stage.
Too quick on the draw there,Way too quick on the draw.
I'd love to pivot.
You touched on a good pointthere about buyer behavior and
whether or not this will have animpact and if buyers are baking
(07:10):
in mortgage cuts for the yearGiven.
We spoke last week about themarket and what was happening
was a bit of an unusual scenariofor this time of year.
In the week that's been, haveyou seen much change in buyer
behavior on the ground andwhat's happening in the local
market, and do you think thisannouncement today will have an
impact on that?
Speaker 1 (07:27):
Look, some real data is coming through now, kiran,
which is good because the lastfew weeks we've caught up.
We've been speaking anecdotally, but the first real data has
hit for 2024 to be able to giveus some insights into what's
going on there.
Domain had the auctionclearance rate for last weekend
at 69%.
They had 545 auctions scheduledwith 444 reported.
(07:53):
So there's 101 results missing,or a bit over 20%, but anyway,
of the ones that were reported,305 sold to give them a reading
of 69%.
The takeout from the domainresults is that 41% of the
successful auctions had soldprior.
That segues with what washappening late last year where
(08:15):
there was a clean split at theend of last year of the
successful auction campaigns 50%were selling prior to auction
and 50% were selling under thehammer.
If we go across the SQMresearchers numbers, they've got
a final clearance rate for theweek of 54.8% from 763 auctions.
Last week, which was the lastweekend in January, they
(08:40):
recorded 44.7% clearance ratefrom 123 auctions.
Now, on the same weekend lastyear, sqm research reported a
52.6% clearance rate from 498auctions.
So you can see, from the firstweekend in February 2023, there
was 498 auctions first.
(09:02):
This year there was 763.
New listings on market this yearare up 20% according to SQM
researchers numbers.
So that is tying straight inwith our numbers and our
feedback that we've been seeingthat stock levels are
surprisingly strong.
This year we saw a number ofproperties that had been
(09:23):
postponed.
Their auctions had beenpostponed last weekend due to
probably insufficient buy demand.
That's really rare to see anauction postponed so early in
the year because there's usuallypent up demand.
Sqm researchers newslettertoday reports that auction
numbers scheduled auctions forFebruary are up 30% on last year
(09:46):
.
So the stock levels areaccelerating and we're seeing
that on the ground where buyersare suddenly surprised after an
absolute lack of stock last yearthey're a little bit surprised
at how much of stock isavailable at the moment.
Speaker 3 (09:59):
It's certainly an interesting set of stats.
You talk about how there are somany more auctions compared to
last year.
The clearance rate is up alittle bit, indicating that
people you know there are saleshappening, whether they be
before auction or on the day, oreven after auction, as we've
talked about in the past.
I do wonder you mentionedthere's a 31% increase in the
(10:20):
number of auctions scheduled tomove forward.
Do you think that that's alayover from those ones that
didn't close out in January that, as you say, have been
postponed, or is it more relatedto the fact that there is just
exponentially more stock on themarket this year compared to
previous years?
There's more stock on themarket.
Speaker 1 (10:34):
There's no shadow of a doubt.
Now, some of those you knowread lists from last year or
overhanging from 2023.
But there's absolutely no doubtthat there's more new year
stock on the market than we'veseen for some time to begin the
year so far.
You know, 55% clearance ratefor the week on 700 odd
(10:54):
properties is a reasonableclearance rate.
What I would question is canthat sustain itself?
Can that sustain itself as thestock levels continue to go up
in combination with what the RBAflagged to the market today?
Speaker 3 (11:10):
I must admit I find the 55% really interesting.
You know, often when we talkabout SQM researchers, auction
clearance rates compared withDomain and REA which you know we
may argue is a little bitfanciful in some ways, we always
talk about the fact that it'susually quite a big gap between
the reported amount and what SQMphysically see.
This higher number tells methat, yes, there is more stock,
(11:33):
but, geez, there are actuallybuyers out there looking for
them and, as you say, it's oftenpent up frustration from 2023
or the year before.
There's people who all of asudden realise maybe they've
baked in a mortgage rate cut,maybe they've just said, you
know, we've had enough of therental market going so crazy.
But there definitely is buyeractivity on the ground and there
is, for maybe the first time ina long time, an oversupply of
(11:56):
stock to meet that demand.
Speaker 1 (11:58):
I wouldn't call it oversupply at the moment.
What I would say about thebuyer behaviour and the
properties that are on themarket and I have spoken to a
number of industry colleaguesaround the city in the last week
just to get their take and seehow their take on the market
parallels with ours and thefeedback is that it's very hit
and miss out there at the momentyou can have one property with
(12:19):
25 genuine buyers turn up to thefirst inspection and then the
next property you show there'llbe two people and their
neighbours that wander through.
So it's very patchy, hit andmiss.
There's a flight to qualitywhatever analogy one wants to
use, go for it but there's not aconsistency in how the market's
performing at the moment andthat's a little bit like a fifth
day cricket pitch, if you like.
(12:40):
It's playing all over the shopand it's making it more
difficult for real estate agentsand vendors to play.
Speaker 3 (12:47):
Certainly makes it more exciting on day five.
I guess the hard question foryou, pete, is if we've got this
oversupply.
Well, not oversupply.
If we have excess stock on themarket and we have buyers out
there, increase stock at themoment.
Increase stock.
Why is there so much stockthere now?
We've talked about mortgagestress in the past.
We've talked about the impactthat rates have and the cost of
living crisis.
What do you think is the majormotivator at the moment?
(13:09):
Do you think it's people justsaying, look, we can't deal with
it anymore?
Or are people really just Idon't know looking for a change?
I can't quite work it out frommy observations on the ground,
that's for sure.
Speaker 1 (13:20):
There's an increase in people who are saying to us
my finances don't really workwith interest rates at the
current setting.
Again, if you look at the data,if you look at the industry
feedback from what we wereseeing on the ground, if you
look at the commentary aboutretail spending, et cetera, the
November rate hike heard.
(13:42):
Now everybody has moved pastdiscussing the mortgage cliff.
It's like it doesn't even existor never did exist.
We've never taken that position, kieran.
We've just said it hasn'timpacted yet, it hasn't been
felt by the economy and byhouseholds.
So, if you ask me, the mortgagecliff that we thought was all
(14:02):
going to change the game forpeople in mid to late 2023 could
be playing out into early tomid 2024, which will mean we're
all early in our predictions bysix months about the impact of
the mortgage cliff.
But I think the RBA will belooking for those signs of
stress and there's no doubt thatall central banks have their
(14:25):
finger on the trigger, ready tocut rates when the time is
required.
But they're looking for adefinite and definitive break in
the economy and in theinflation trend before they do
that.
Speaker 3 (14:39):
Yeah, well, as you say, there's no point cutting
rates in anticipation ofcontinued deflation.
And then we end up in, you know, heading towards another
inflationary period, which isabsolutely pointless.
I wonder if you know.
To use an analogy the mortgagecliff is a bit like a mortgage
iceberg now and we're justfloating along, floating along,
waiting for that inevitable endwhich you know.
Many people may have beenwaiting for, this first
(15:01):
announcement from the IBA,expecting a possible rate cut or
some more positive news.
And if they were sitting underfinancial stress, thinking, well
, we'll just hold out and seewhat happens, and this may be
the trigger, as you say, to thenlead towards those middle of
year stress sales to get peopleout of continued trouble.
Speaker 1 (15:17):
Yeah, well, look, anyone that does find that their
finances are stressed reallyneeds a plan B and a plan C, and
the best thing to do is to goearly.
If you feel that your financeswon't, you won't be able to see
your finances through to thenext, the next cycle, but there
is.
We're seeing it.
More and more buyers areholding back in the bids they
(15:38):
make and vendors are puttingproperties on the market that
they might not otherwise put onthe market, but it's just a good
time to reduce debt and get ridof the mortgage.
Speaker 3 (15:48):
Yeah well, you certainly don't want to wait too
close to the end and putyourself in a position where you
lose all control over the sale.
That's right.
Something we've certainly talkedabout before, peter.
As we sort of move forward inour discussion, I'd love to get
a sense of what really you thinkis going to happen in the
market now for us as we movetowards Easter not too far away
now.
I hate to say that but it'screeping up on us very quickly,
(16:09):
given the announcements, giventhe stock levels we've seen and
the buyer activity you know,both relatively high what's the
forecast look like for Sydneyproperty over the next say, six
to eight weeks?
Speaker 1 (16:18):
Look, I think vendors are going to have to focus on
accurate pricing and I think theinstances of vendors achieving
overs will be reduced.
This year, kieran and theexamples of properties falling a
little bit short of what peoplesitting on the sidelines
thought it may have achievedwill increase.
There won't be a crash in themarket, but I think last year we
(16:43):
saw month after month we sawvendors landing on the right
side of the sale where they gota little bit more than they may
have anticipated.
I think that will come back.
It is only early in the year,but one trend I have seen where
I've seen prices beingrecalibrated mid-campaign where
they're going up, thoseproperties tend to be, in the
(17:04):
vast majority of instances,above $3 million.
Where property prices need tobe revised down mid-campaign, in
the vast majority of casesthose prices are below $2
million.
So what I'm seeing already isthat the money at the higher end
is still swishing around andpretty confident and bulky
(17:25):
because agents are scaling upthe price guides for their
respective properties.
But at the what you might callthe mortgage end of the market,
you're still seeing a squeeze ofsorts there.
Speaker 3 (17:36):
Yeah, really interesting comments there,
Peter.
I think there certainly alignswith everything we've talked
about over the last.
I want to say 12 to 18 monthswhere the top end is relatively
immune I'm not going to saycompletely immune, but
relatively immune to thesechanges and can operate with
confidence.
You know their money may betied up in completely different
assets that are free from someof these issues.
I wonder, given the scenariothat we're in at the moment and
(17:59):
again it's only early what inyour experience would you say to
any prospective vendor is theideal way to sell your property
in a market like this, whereyou've got lots of competition,
you've got buys around, buteveryone's a little bit cagey,
the money markets are a littlebit uncertain.
You know we're under afinancial cloud, so to speak.
It's a really weird time.
(18:21):
What do you think is the beststrategy for someone who's
considering doing something now?
Speaker 1 (18:25):
Look, I think, regardless of sale process, you
need to have a price on yourproperty that doesn't mislead
people into bidding because it'sso low that you've got below
market buyers price buyersthinking they're going to secure
the bargain of a lifetime.
But you do need to start yourprice guide where the bidding
starts.
(18:46):
Once you have buyer competitionin place, your marketing price
has done its job, then it's acase of who, of the potential
bidders or the active bidders, Ishould say on the respective
property, who's the best of them.
So you do want a price at apoint where you create
competition.
That means you don't overpriceas a vendor, nor do you
underprice If you price atmarket price.
(19:08):
You attract the market and thenfrom there, as a vendor looking
to sell your property, whichyou only ever sell once you're
fully entitled to say of theactive bidders, who's prepared
to go the highest to secure thisproperty.
Speaker 3 (19:21):
Good answer.
I'm going to put you on thespot, though.
I really want to know,relatively black or white, if
you've got massive stock on handand you've got a lot of
different buyers out there andreally they've got choice, are
you better going to a publicsale, like an auction, or are
you better off trying tonegotiate privately with the
best bidders that exist in themarket?
Speaker 1 (19:39):
Oh look, if you go to an open and public auction,
your hand is on full display asa vendor.
You're fully exposed.
The whole process istransparent.
So if you've only got onebidder, it's completely
transparent on the day.
Some people like the deadlineand think that if they can get
10 prospective bidders in a roomthat they'll all fight it out.
I haven't seen an auction with10 bidders in recent times,
(20:02):
unless it's been underquoted by20%.
So if you do watch an auctionwith 10 or 20 bidders on it,
it's probably because it's beenunderquoted so dramatically.
So we think that if you've gotsomewhere between two and five
genuine bidders on a property,that's the recipe to achieve a
premium for that and that's allyou need.
And fives at the outside, whenyou're talking about more
(20:25):
available or generic stock, likeapartments, for example, and
high rises, you're probably notgoing to have a competitive sale
on that sort of product.
Yes, if you've got amagnificent family home down in
Birch Grove, you've got a verydesirable product.
But what you must keep in mindis that there's less people
running around with 10 to 12million than there are with
(20:46):
three to five.
So you really must tailor thesales process to the price point
and the activity levels in theprice point that is happening at
that point in time for aproperty like yours.
Speaker 3 (20:58):
Yeah, really good advice and a nice summation
there.
Peter, as we wrap up today, I'mgoing to put you on the spot.
You have talked about data fromsome, some big banks and
reputable sources today, but Iwant to know from the Bank of
Peter O'Malley when do you thinkthe RBA will make its first
rate cut this year?
Speaker 1 (21:14):
Well, I think it'll go after its international peers
.
That's my take here and sothose that were looking for the
RBA to cut rates.
I run this by today, which Ithought was pretty interesting.
The cash rate in Hong Kong is5.75%, in New Zealand it's 5.5%,
in the US and UK it's 5.25%, inCanada it's 5% and in the EU
(21:38):
it's 4.5%.
In Australia the cash rate is4.35%.
So to think that the RBA willbe the first or one of the early
runners on cutting rates Ithink is a misread.
And until you see the vastmajority of those international
reserve banks starting to cutrates, I don't think there's
(22:00):
very little chance that the RBAwill go, because they'll send
the Australian dollar below 60cents.
Speaker 3 (22:07):
You know that's a really interesting summary
because it just shows how onenumber can have two completely
different meanings depending onthe context.
4.35% cash rate to me as ahomeowner is terrifying, but
4.35% in relationship to therest of the central banks is at
the lowest number and that seemslike oh, actually we're not in
(22:27):
so bad a position.
Speaker 1 (22:28):
That's because there's so much debt in our
housing market that theycouldn't.
Could you imagine if the RBAdialed up rates to 5.5%, like
New Zealand, for example?
Speaker 3 (22:37):
Well, I certainly wouldn't be living in my home,
that's for sure.
Speaker 1 (22:40):
Like many others.
Speaker 3 (22:41):
I suspect.
Speaker 1 (22:41):
Yeah, and so I only stumbled on all of this today,
but when I saw Jerome Powell usethe word sustainable,
sustainable fashion, thatinflation has come down, and
then the RBA used the same intheir statement today you know,
I'm not saying that thesecentral bankers are ringing each
other up, but I'm not sayingthey're not either.
Speaker 3 (23:02):
Oh, I think that's a really good answer from you,
peter, and it's certainly you'vedone well at committing an
answer without committing a timeframe to your answer.
That's what all good realestate agents do, isn't it?
They never, ever, answered thequestion.
As always, peter, really greatto chat today.
I think we've covered somegreat topics and got some really
good insights for the weekahead.
Speaker 1 (23:19):
Look forward to catching up next week, kieran.
Speaker 3 (23:21):
Thanks so much, peter , and thanks to everyone for
listening in to Current MarketInsights.
We look forward to talking toyou next time.
Speaker 2 (23:26):
Thanks for joining us on the Current Market Insights
podcast brought to you by HarrisPartners Real Estate, the
podcast providing real estateinsights you won't find anywhere
else.
All down, all silent, going, going, going.
Go on, stop the black noise.
Speaker 2 (00:07):
Welcome to the Current Market Insights podcast
brought to you by HarrisPartners Real Estate.
Each episode we chat with realestate author and industry
leader, peter O'Malley, todiscuss the current property
market conditions and provideinsights to assist you on your
property journey.
Speaker 3 (00:30):
Hello and welcome to another edition of Current
Market Insights.
I'm your host, kieran O'Brien,and, as always, with me is my
good friend, mr Peter O'Malley.
Peter, hello, good to see you,kieran, good to see you, peter.
Big day in Sydney Real Estate,I think with the RBA meeting
earlier today, and I thoughtwe'd start the show just by
getting a bit of a wrap up ofwhat the RBA had to say, what
was in their statement andreally what it means for us at
(00:53):
the moment.
Speaker 1 (00:54):
Well, the line that's captured the most attention,
kieran, is the board needs to beconfident that inflation is
moving sustainably towards thetarget rate.
The path of interest rates thatwill best ensure that inflation
returns to target in areasonable timeframe will depend
upon the data and the evolvingassessment of risks, and further
(01:14):
increase in interest ratescannot be ruled out.
So that's counter to what themarket was looking for and
that's clearly the RBA stampingon enthusiasm in the economy and
society that rate cuts areimminent and the RBA saying not
so quick.
Speaker 3 (01:32):
Do they give any indication of what they mean in
terms of time frame?
So, when they say they need tofeel confident that inflation is
trending toward the target orwhatever it may be, is that
something that they willreassess in a month, or is this
more likely to be a three or sixmonth kind of scenario?
Speaker 1 (01:47):
Well, look, they don't put a time frame on it.
What they say is that returninginflation to target within a
reasonable timeframe remains theboard's highest priority.
And the reality is that, whilstthe trend for inflation has
turned in the RBA's favour, theydo say clearly in this
statement that it is still abovetheir target range.
(02:07):
Not only do they want theinflation rate within their
target range, they want to beconfident here and that it's
sustainably within their range.
Now, getting ready for our chattoday, I read the RBA statement
as we've just gone through, butI also read Jerome Powell's
statement as well, because hegave a very, very similar
(02:30):
message to the American peopleduring the week, and I found
both the RBA and Jerome Powell,the Federal Reserve Governor
there, used the same phrase.
Essentially, powell said thatthe Fed needs more time to
confirm that inflation is movingdown to 2% in a sustainable way
(02:52):
.
So there's that word againsustainable.
So what both central banks aresaying to their respective
constituencies we don't want tobe on track to meet target.
We don't want to get to targetand then see it bounce due to
global concerns.
We want to be confident thatit's sustainably under control,
because there's no point goingthrough the pain that we have as
(03:16):
a Western society, taking onthese interest rate rises and
the higher costs get to withintarget, cut interest rates and
then do a rinse and repeat whereinflation takes off again.
So really interesting.
I think that you're seeing alot of signalling and a lot of
cohesiveness between themessaging from central banks.
Speaker 3 (03:35):
Yeah, I find it interesting.
I get the impression that theRBA won't want to hedge their
bets a little bit and just playit a little more cautious this
year than they have done lastyear, particularly with their
messaging, knowing the flow andeffects it has.
But it also says to me thatthey think maybe this dip in
inflation in this first January31 reporting is perhaps not
(03:55):
indicative of the broaderinflationary picture and that
there really is a bit morevolatility or uncertainty to
come before, as you say, wereach that point of stability in
the market.
Speaker 1 (04:05):
Well, in recent weeks we've discussed geopolitical
and what role that plays in theRBA's thinking, and it's in the
statement today.
Kieran, you're 100% correct.
They say quote unquote.
There also remains a high levelof uncertainty around the
outlook for the Chinese economy,the implication of the
conflicts in Ukraine and theMiddle East.
Domestically, their uncertaintyis regarding the lags in the
effect of the monetary policyand how firms, pricing decisions
(04:28):
and wages will respond toslower growth in the economy at
a time of excess demand.
So you're absolutely right, theRBA are watching all of this
and they're not satisfied thatthe economy or the property
market need a rate cut.
Speaker 3 (04:44):
I find it interesting and I'd love to get your
thoughts.
In the week before, so justlast week, I read some articles
talking about smaller lendersfactoring in rate cuts to their
fixed rate mortgages inanticipation of a RBA
announcement.
Do you think that thisannouncement of a good
inflationary outlook, a hold onrates, is going to have an
impact on mortgage rates, and doyou think some of the bigger
(05:05):
banks may start to preemptively?
Speaker 1 (05:07):
cut.
Well, if we're talking fixedrates one, two, three year fixed
rates it's understandable theymight shave a little bit off
there to be competitive in thatspace.
So what we're talking abouthere today, Kieran, is that the
market and some economists werelooking for a rate cut somewhere
around the middle of the year,and it's looking like there
(05:30):
won't be a rate cut based on thecurrent trajectory until Q4
this year, or even early nextyear if things remain resilient.
Speaker 3 (05:40):
I think that does align with what we said at the
end of last year.
If you recall, most of thepredictions, including from
Louis at SQM, was that the firstrate cut would likely come
around November of this year andit seems that we're holding on
that track at the moment.
Speaker 1 (05:52):
And the four major retail banks have all got that
assessment September to Novemberfor the first rate cut, where
many economic commentators inthe media have suggested they'll
need to go a little bit earlier.
In fairness, the money marketsare also suggesting that the RBA
will be forced to cut earlier.
In our February newsletter wedid make the comment, Kieran,
(06:15):
that it will be interesting tosee if home buyers bake rate
cuts into their buyer behaviourwhen they're bidding on
properties this year.
And that just goes for everyoneelse that's operating in the
economy, and I think thestatement today from the RBA is
designed to kill that attitudethat could creep in.
There's rate cuts coming.
(06:36):
Let's go out and spend asthough we're going to get a rate
cut in the next few months andget in front of the market.
The RBA are taking that excessconfidence that might be
building in the commentary away.
Speaker 3 (06:48):
You know.
Interestingly, Peter, only thismorning I had a conversation
with someone who said they wereexcited for 2024 because they
should see their mortgage ratecome down by a couple of percent
and I thought to myself gosh,that would be nice, but it's not
very likely at this stage.
Too quick on the draw there,Way too quick on the draw.
I'd love to pivot.
You touched on a good pointthere about buyer behavior and
whether or not this will have animpact and if buyers are baking
(07:10):
in mortgage cuts for the yearGiven.
We spoke last week about themarket and what was happening
was a bit of an unusual scenariofor this time of year.
In the week that's been, haveyou seen much change in buyer
behavior on the ground andwhat's happening in the local
market, and do you think thisannouncement today will have an
impact on that?
Speaker 1 (07:27):
Look, some real data is coming through now, kiran,
which is good because the lastfew weeks we've caught up.
We've been speaking anecdotally, but the first real data has
hit for 2024 to be able to giveus some insights into what's
going on there.
Domain had the auctionclearance rate for last weekend
at 69%.
They had 545 auctions scheduledwith 444 reported.
(07:53):
So there's 101 results missing,or a bit over 20%, but anyway,
of the ones that were reported,305 sold to give them a reading
of 69%.
The takeout from the domainresults is that 41% of the
successful auctions had soldprior.
That segues with what washappening late last year where
(08:15):
there was a clean split at theend of last year of the
successful auction campaigns 50%were selling prior to auction
and 50% were selling under thehammer.
If we go across the SQMresearchers numbers, they've got
a final clearance rate for theweek of 54.8% from 763 auctions.
Last week, which was the lastweekend in January, they
(08:40):
recorded 44.7% clearance ratefrom 123 auctions.
Now, on the same weekend lastyear, sqm research reported a
52.6% clearance rate from 498auctions.
So you can see, from the firstweekend in February 2023, there
was 498 auctions first.
(09:02):
This year there was 763.
New listings on market this yearare up 20% according to SQM
researchers numbers.
So that is tying straight inwith our numbers and our
feedback that we've been seeingthat stock levels are
surprisingly strong.
This year we saw a number ofproperties that had been
(09:23):
postponed.
Their auctions had beenpostponed last weekend due to
probably insufficient buy demand.
That's really rare to see anauction postponed so early in
the year because there's usuallypent up demand.
Sqm researchers newslettertoday reports that auction
numbers scheduled auctions forFebruary are up 30% on last year
(09:46):
.
So the stock levels areaccelerating and we're seeing
that on the ground where buyersare suddenly surprised after an
absolute lack of stock last yearthey're a little bit surprised
at how much of stock isavailable at the moment.
Speaker 3 (09:59):
It's certainly an interesting set of stats.
You talk about how there are somany more auctions compared to
last year.
The clearance rate is up alittle bit, indicating that
people you know there are saleshappening, whether they be
before auction or on the day, oreven after auction, as we've
talked about in the past.
I do wonder you mentionedthere's a 31% increase in the
(10:20):
number of auctions scheduled tomove forward.
Do you think that that's alayover from those ones that
didn't close out in January that, as you say, have been
postponed, or is it more relatedto the fact that there is just
exponentially more stock on themarket this year compared to
previous years?
There's more stock on themarket.
Speaker 1 (10:34):
There's no shadow of a doubt.
Now, some of those you knowread lists from last year or
overhanging from 2023.
But there's absolutely no doubtthat there's more new year
stock on the market than we'veseen for some time to begin the
year so far.
You know, 55% clearance ratefor the week on 700 odd
(10:54):
properties is a reasonableclearance rate.
What I would question is canthat sustain itself?
Can that sustain itself as thestock levels continue to go up
in combination with what the RBAflagged to the market today?
Speaker 3 (11:10):
I must admit I find the 55% really interesting.
You know, often when we talkabout SQM researchers, auction
clearance rates compared withDomain and REA which you know we
may argue is a little bitfanciful in some ways, we always
talk about the fact that it'susually quite a big gap between
the reported amount and what SQMphysically see.
This higher number tells methat, yes, there is more stock,
(11:33):
but, geez, there are actuallybuyers out there looking for
them and, as you say, it's oftenpent up frustration from 2023
or the year before.
There's people who all of asudden realise maybe they've
baked in a mortgage rate cut,maybe they've just said, you
know, we've had enough of therental market going so crazy.
But there definitely is buyeractivity on the ground and there
is, for maybe the first time ina long time, an oversupply of
(11:56):
stock to meet that demand.
Speaker 1 (11:58):
I wouldn't call it oversupply at the moment.
What I would say about thebuyer behaviour and the
properties that are on themarket and I have spoken to a
number of industry colleaguesaround the city in the last week
just to get their take and seehow their take on the market
parallels with ours and thefeedback is that it's very hit
and miss out there at the momentyou can have one property with
(12:19):
25 genuine buyers turn up to thefirst inspection and then the
next property you show there'llbe two people and their
neighbours that wander through.
So it's very patchy, hit andmiss.
There's a flight to qualitywhatever analogy one wants to
use, go for it but there's not aconsistency in how the market's
performing at the moment andthat's a little bit like a fifth
day cricket pitch, if you like.
(12:40):
It's playing all over the shopand it's making it more
difficult for real estate agentsand vendors to play.
Speaker 3 (12:47):
Certainly makes it more exciting on day five.
I guess the hard question foryou, pete, is if we've got this
oversupply.
Well, not oversupply.
If we have excess stock on themarket and we have buyers out
there, increase stock at themoment.
Increase stock.
Why is there so much stockthere now?
We've talked about mortgagestress in the past.
We've talked about the impactthat rates have and the cost of
living crisis.
What do you think is the majormotivator at the moment?
(13:09):
Do you think it's people justsaying, look, we can't deal with
it anymore?
Or are people really just Idon't know looking for a change?
I can't quite work it out frommy observations on the ground,
that's for sure.
Speaker 1 (13:20):
There's an increase in people who are saying to us
my finances don't really workwith interest rates at the
current setting.
Again, if you look at the data,if you look at the industry
feedback from what we wereseeing on the ground, if you
look at the commentary aboutretail spending, et cetera, the
November rate hike heard.
(13:42):
Now everybody has moved pastdiscussing the mortgage cliff.
It's like it doesn't even existor never did exist.
We've never taken that position, kieran.
We've just said it hasn'timpacted yet, it hasn't been
felt by the economy and byhouseholds.
So, if you ask me, the mortgagecliff that we thought was all
(14:02):
going to change the game forpeople in mid to late 2023 could
be playing out into early tomid 2024, which will mean we're
all early in our predictions bysix months about the impact of
the mortgage cliff.
But I think the RBA will belooking for those signs of
stress and there's no doubt thatall central banks have their
(14:25):
finger on the trigger, ready tocut rates when the time is
required.
But they're looking for adefinite and definitive break in
the economy and in theinflation trend before they do
that.
Speaker 3 (14:39):
Yeah, well, as you say, there's no point cutting
rates in anticipation ofcontinued deflation.
And then we end up in, you know, heading towards another
inflationary period, which isabsolutely pointless.
I wonder if you know.
To use an analogy the mortgagecliff is a bit like a mortgage
iceberg now and we're justfloating along, floating along,
waiting for that inevitable endwhich you know.
Many people may have beenwaiting for, this first
(15:01):
announcement from the IBA,expecting a possible rate cut or
some more positive news.
And if they were sitting underfinancial stress, thinking, well
, we'll just hold out and seewhat happens, and this may be
the trigger, as you say, to thenlead towards those middle of
year stress sales to get peopleout of continued trouble.
Speaker 1 (15:17):
Yeah, well, look, anyone that does find that their
finances are stressed reallyneeds a plan B and a plan C, and
the best thing to do is to goearly.
If you feel that your financeswon't, you won't be able to see
your finances through to thenext, the next cycle, but there
is.
We're seeing it.
More and more buyers areholding back in the bids they
(15:38):
make and vendors are puttingproperties on the market that
they might not otherwise put onthe market, but it's just a good
time to reduce debt and get ridof the mortgage.
Speaker 3 (15:48):
Yeah well, you certainly don't want to wait too
close to the end and putyourself in a position where you
lose all control over the sale.
That's right.
Something we've certainly talkedabout before, peter.
As we sort of move forward inour discussion, I'd love to get
a sense of what really you thinkis going to happen in the
market now for us as we movetowards Easter not too far away
now.
I hate to say that but it'screeping up on us very quickly,
(16:09):
given the announcements, giventhe stock levels we've seen and
the buyer activity you know,both relatively high what's the
forecast look like for Sydneyproperty over the next say, six
to eight weeks?
Speaker 1 (16:18):
Look, I think vendors are going to have to focus on
accurate pricing and I think theinstances of vendors achieving
overs will be reduced.
This year, kieran and theexamples of properties falling a
little bit short of what peoplesitting on the sidelines
thought it may have achievedwill increase.
There won't be a crash in themarket, but I think last year we
(16:43):
saw month after month we sawvendors landing on the right
side of the sale where they gota little bit more than they may
have anticipated.
I think that will come back.
It is only early in the year,but one trend I have seen where
I've seen prices beingrecalibrated mid-campaign where
they're going up, thoseproperties tend to be, in the
(17:04):
vast majority of instances,above $3 million.
Where property prices need tobe revised down mid-campaign, in
the vast majority of casesthose prices are below $2
million.
So what I'm seeing already isthat the money at the higher end
is still swishing around andpretty confident and bulky
(17:25):
because agents are scaling upthe price guides for their
respective properties.
But at the what you might callthe mortgage end of the market,
you're still seeing a squeeze ofsorts there.
Speaker 3 (17:36):
Yeah, really interesting comments there,
Peter.
I think there certainly alignswith everything we've talked
about over the last.
I want to say 12 to 18 monthswhere the top end is relatively
immune I'm not going to saycompletely immune, but
relatively immune to thesechanges and can operate with
confidence.
You know their money may betied up in completely different
assets that are free from someof these issues.
I wonder, given the scenariothat we're in at the moment and
(17:59):
again it's only early what inyour experience would you say to
any prospective vendor is theideal way to sell your property
in a market like this, whereyou've got lots of competition,
you've got buys around, buteveryone's a little bit cagey,
the money markets are a littlebit uncertain.
You know we're under afinancial cloud, so to speak.
It's a really weird time.
(18:21):
What do you think is the beststrategy for someone who's
considering doing something now?
Speaker 1 (18:25):
Look, I think, regardless of sale process, you
need to have a price on yourproperty that doesn't mislead
people into bidding because it'sso low that you've got below
market buyers price buyersthinking they're going to secure
the bargain of a lifetime.
But you do need to start yourprice guide where the bidding
starts.
(18:46):
Once you have buyer competitionin place, your marketing price
has done its job, then it's acase of who, of the potential
bidders or the active bidders, Ishould say on the respective
property, who's the best of them.
So you do want a price at apoint where you create
competition.
That means you don't overpriceas a vendor, nor do you
underprice If you price atmarket price.
(19:08):
You attract the market and thenfrom there, as a vendor looking
to sell your property, whichyou only ever sell once you're
fully entitled to say of theactive bidders, who's prepared
to go the highest to secure thisproperty.
Speaker 3 (19:21):
Good answer.
I'm going to put you on thespot, though.
I really want to know,relatively black or white, if
you've got massive stock on handand you've got a lot of
different buyers out there andreally they've got choice, are
you better going to a publicsale, like an auction, or are
you better off trying tonegotiate privately with the
best bidders that exist in themarket?
Speaker 1 (19:39):
Oh look, if you go to an open and public auction,
your hand is on full display asa vendor.
You're fully exposed.
The whole process istransparent.
So if you've only got onebidder, it's completely
transparent on the day.
Some people like the deadlineand think that if they can get
10 prospective bidders in a roomthat they'll all fight it out.
I haven't seen an auction with10 bidders in recent times,
(20:02):
unless it's been underquoted by20%.
So if you do watch an auctionwith 10 or 20 bidders on it,
it's probably because it's beenunderquoted so dramatically.
So we think that if you've gotsomewhere between two and five
genuine bidders on a property,that's the recipe to achieve a
premium for that and that's allyou need.
And fives at the outside, whenyou're talking about more
(20:25):
available or generic stock, likeapartments, for example, and
high rises, you're probably notgoing to have a competitive sale
on that sort of product.
Yes, if you've got amagnificent family home down in
Birch Grove, you've got a verydesirable product.
But what you must keep in mindis that there's less people
running around with 10 to 12million than there are with
(20:46):
three to five.
So you really must tailor thesales process to the price point
and the activity levels in theprice point that is happening at
that point in time for aproperty like yours.
Speaker 3 (20:58):
Yeah, really good advice and a nice summation
there.
Peter, as we wrap up today, I'mgoing to put you on the spot.
You have talked about data fromsome, some big banks and
reputable sources today, but Iwant to know from the Bank of
Peter O'Malley when do you thinkthe RBA will make its first
rate cut this year?
Speaker 1 (21:14):
Well, I think it'll go after its international peers
.
That's my take here and sothose that were looking for the
RBA to cut rates.
I run this by today, which Ithought was pretty interesting.
The cash rate in Hong Kong is5.75%, in New Zealand it's 5.5%,
in the US and UK it's 5.25%, inCanada it's 5% and in the EU
(21:38):
it's 4.5%.
In Australia the cash rate is4.35%.
So to think that the RBA willbe the first or one of the early
runners on cutting rates Ithink is a misread.
And until you see the vastmajority of those international
reserve banks starting to cutrates, I don't think there's
(22:00):
very little chance that the RBAwill go, because they'll send
the Australian dollar below 60cents.
Speaker 3 (22:07):
You know that's a really interesting summary
because it just shows how onenumber can have two completely
different meanings depending onthe context.
4.35% cash rate to me as ahomeowner is terrifying, but
4.35% in relationship to therest of the central banks is at
the lowest number and that seemslike oh, actually we're not in
(22:27):
so bad a position.
Speaker 1 (22:28):
That's because there's so much debt in our
housing market that theycouldn't.
Could you imagine if the RBAdialed up rates to 5.5%, like
New Zealand, for example?
Speaker 3 (22:37):
Well, I certainly wouldn't be living in my home,
that's for sure.
Speaker 1 (22:40):
Like many others.
Speaker 3 (22:41):
I suspect.
Speaker 1 (22:41):
Yeah, and so I only stumbled on all of this today,
but when I saw Jerome Powell usethe word sustainable,
sustainable fashion, thatinflation has come down, and
then the RBA used the same intheir statement today you know,
I'm not saying that thesecentral bankers are ringing each
other up, but I'm not sayingthey're not either.
Speaker 3 (23:02):
Oh, I think that's a really good answer from you,
peter, and it's certainly you'vedone well at committing an
answer without committing a timeframe to your answer.
That's what all good realestate agents do, isn't it?
They never, ever, answered thequestion.
As always, peter, really greatto chat today.
I think we've covered somegreat topics and got some really
good insights for the weekahead.
Speaker 1 (23:19):
Look forward to catching up next week, kieran.
Speaker 3 (23:21):
Thanks so much, peter , and thanks to everyone for
listening in to Current MarketInsights.
We look forward to talking toyou next time.
Speaker 2 (23:26):
Thanks for joining us on the Current Market Insights
podcast brought to you by HarrisPartners Real Estate, the
podcast providing real estateinsights you won't find anywhere
else.
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