Great Ocean report market update – May 2021
WITH MARTY MAHER FROM GREAT OCEAN PROPERTIES
As we draw towards the end of the financial year, we can look back at what has been an incredible period for most real estate markets in Australia, in particular regional property markets.
For many years we have provided a breakdown of the performance of the Great Ocean Road towns at the conclusion of each financial year.
We can already see there will be significant capital gains across all areas and we look forward to providing these figures again in early July.
The question we get asked by many market participants (both potential sellers and buyers) is will prices keep rising?
Let’s see if we can work this out so you can understand what is likely to happen.
When we look at recent history you can see that property markets do ebb and flow in their performance.
There are two broad aspects that determine their performance and they are the overall prevailing sentiment at the time and the local conditions affecting any particular area during that period.
Prevailing sentiment takes into account such things as economic conditions including interest rates and credit availability, lifestyle demographic changes and the general willingness to act by both buyers and sellers.
Local conditions take into account the available housing supply versus demand for any particular area and local factors such as available employment or an ability to work from this area that allows people to live there.
For the past 12 months we have seen a positive willingness (prevailing sentiment) to transact by both buyers and sellers.
This started as a reaction to COVID as some people decided they needed a lifestyle change after being locked down for several months, but developed into a full market trend as Australia’s well known FOMO (Fear Of Missing Out) trait surfaced once again.
Initially the regional markets benefitted the most however it wasn’t long before the metropolitan markets also kicked into gear.
We see this in most buoyant market periods but it was particularly evident after the GFC, when the Australian government relaxed the immigration laws to allow increased foreign investment to protect the Australian property market after seeing the USA property markets get heavily impacted.
Foreign money (particularly Chinese money) poured into Australia, buying up a lot of the affluent areas of Melbourne and Sydney.
It didn’t take long for the locals to jump on board and the property market took off again driven purely by FOMO.
In the past 12 months, buyers have been primarily driven by lifestyle change and the sellers have been generally driven by the fact that it is just a good time to sell because of the prices they are seeing around them.
On the Great Ocean Road this has been a very common reason to sell.
Many of our vendors have been older owners who no longer need or want a beach house and see it as a great opportunity to cash in. Nearly all have experienced above expected results driven by short supply and above normal demand.
So how long will this go on for and will prices keep rising?
Over the past 30 years we have seen periods of strong acceleration of prices and when you are in the middle of these periods it always feel like the new normal. These periods do slow however and the urgency to act (particularly buy) dissipates.
The first sign of this is increasing stock levels. This usually happens by the new increased expectations of property owners not being met by buyers.
At the coalface it looks like this. Property A is being advertised at $1.2m-$1.3m. It is in a popular area with not much supply. It attracts significant interest and at auction the bidding is fierce. It sells for $1.9m. Now all the owners in that street and immediate area think their property is better than Property A and now think their property is worth $2m+.
Property owners B and C in the area can’t resist these prices and place their properties on the market priced at $2m+ and $2m++. Despite the above expected result of Property A they fail to sell and sit on the market for longer than what other properties have been selling for recently.
With the visual nature of the real estate market through prominent websites such as realestate.com.au and domain.com.au, buyers start to see that the stock is building up and the urgency to act is not as strong as it once was.
This is where the sentiment changes and FOMO dissipates.
There are some key elements to note here. Firstly when it comes to selling in these buoyant periods, process is everything and trying to predict prices is extremely difficult. If you get the process right, the price will take care of itself.
Secondly, as we have mentioned many times in our reports “everyone does what everyone else does” and if you want to determine what is likely to occur in a property market (or stock market for that matter) you need to watch the psychology of the herd.
Unfortunately much of this only becomes obvious in hindsight, however we as agents, watch it very closely and try to advise accordingly.
Like any industry there are some practitioners that are better at it than others but it is certainly a much discussed subject within Great Ocean Properties.
An aspect that needs to be mentioned is that local conditions can vary significantly from area to area, late in the cycle.
Some areas, particularly some metropolitan areas, where there is significant supply available, can see a build up of listings quite quickly.
It does not necessarily mean a drop off in buyer intent, it’s that more property owners have decided to take advantage of the buoyant conditions to make a move but have taken their time to make a decision.
The effect on that area will be similar to a market slowdown as the buyers get diluted by the increased numbers of available slow down. It’s simply a supply versus demand issue.
We hope you found this Great Ocean Report informative.
If you need any assistance in any real estate matter, particularly in regard to the appropriate selling process for your property and market trends in your area, please do not hesitate to call.