How to sell in a weak market

The country’s biggest property markets are stagnant or softening

LAST December we wrote a column on how to sell your home in a slow property market. We received a lot of critical feedback, saying the market was booming and not to be so pessimistic.

Now, seven months later, reality is setting in, particularly in Sydney and, to a lesser extent, in Melbourne.

Hindsight shows the Australian housing market peaked in September last year.

Since then the average number of days a Sydney house has taken to sell has risen from 45 days to 63 days and, for home units, from 54 to 64 days.

In Melbourne, days on the market for homes is stable at 48 days, but with home units it has actually dropped from 100 to 75 days. Sydney auction clearance rates have dropped from about 80 per cent to the mid 50s, and Melbourne is the same. Another key statistic is the discount to the advertised price that properties were sold for. In Sydney that discount has risen from 5 to 6.4 per cent, and in Melbourne from 4.6 to 5.7 per cent.

The data is now irrefutable that the biggest property markets in Australia are softening. Going against the trend is Hobart, with continuing strong growth, but Sydney and Perth have had significant slides and other capital cities are stagnant.

As we advised in December, a falling property market needs sellers to: realistic in pricing. a good real estate agent. the property well. buy a new property before you sell.

The pendulum has swung in favour of buyers. If you’re a buyer:

BE HIRE PRESENT NEVER ORGANISE MAKE DON’T

preapproval on

your finance.

an offer well below asking price.

get emotionally attached to a property.

The big question now is how far the market will turn down. There are lots of pessimists who claim parts of the residential property market are 40 per cent overvalued. That’s because we didn’t go through the worldwide property downturn following the Global Financial Crisis. We’re not nearly as gloomy as that but there are six warning signs to monitor when it comes to the future of property values.

RISING INTEREST RATES

Borrowing money has never been cheaper. But this period of easy money can lead to a financially deadly “debt trap” for those who overdo it.

Expect the major banks to put up home loan rates slightly to offset their increased costs of funding. If the economy slows, the job market deteriorates, unemployment rises, incomes become uncertain, confidence falls and property prices suffer.

CLEARANCE RATES

Auction clearance rates are a regular, consistent barometer of property market health. When clearance rates fall it indicates fewer buyers and more sellers, which is likely to see property values fall or stabilise. Beware.

RISING VACANCY RATES

Rising property vacancy rates mean there aren’t enough tenants to go around, so investors will either have to slash their rents to attract tenants or sell the property because the returns don’t justify the investment. This combination will push values down.

FALLING RENTAL YIELDS

If rental vacancy rates rise, landlords will have to lower their rents to attract tenants, otherwise the property will be vacant and earn no income. No – or lower – rental income means the property isn’t as valuable and potential investor buyers won’t pay as much.

ABOVE-AVERAGE CONSTRUCTION

If construction outstrips demand, values will fall as sellers compete to attract buyers by lowering prices. That’s the current concern about the Melbourne, Sydney and Brisbane inner-city home unit market.