2023 property market defying media's downcast expectations
New API Magazine columnist Andrew Bell OAM discusses how the property market has unfolded in the opening months of 2023 and argues that the best time to buy a property is during the realignment phase now underway.
The real estate cycle that has been demonstrated for more than 100 years all but guaranteed that after one of the greatest booms in the real estate market during 2020 and 2021 that the second half of 2022 and a good deal of 2023 would become a correction or realignment market.
No market can continue at that gangbuster pace indefinitely and it’s important for markets to pause and reset.
Unfortunately, in both the rising market and in the correction phase, mainstream electronic and print media rely on a degree of sensationalism in order to grab reader attention. They get a very fixed view on what the market is like and search for evidence to support their headlines.
Having been in the industry for more than 50 years, there is nothing alarming about the present market.
Predictions of market crashes happen at this stage of the market cycle every single time. The forecast was that 2023 would be a terrible year for real estate, so how has the year actually started?
Property demand not abating
I think the one fundamental thing that so many people fail to understand is that every one of us needs a place to live.
We have either got to buy it or rent it, and if we are going to rent it somebody else has to buy it for us, so there is always a continuum of demand.
Likewise with sellers, there are always people who have to sell, whether it’s job relocation, financial pressure, divorce, deceased estates, and the list goes on.
What truly lies at the bottom of the real estate market is the balance between buyers and sellers - the old law of supply and demand. If there are more buyers than sellers prices will go up, if there are more sellers than buyers prices will go down. That holds true for every commodity.
Stock levels around the country are not only low but in decline, creating a catch-22 situation with many prospective sellers simply not putting their property on the market as they cannot find anything else to buy.
Construction costs have gone through the roof, so the latest stats are showing a sharp decline in building approvals.
There is no sign of rising stock levels in the marketplace.
Even the predicted mortgage stress belt has not yet shown itself in sellers under financial pressure. There has been no increase in mortgagee work and in fact it has actually softened a little, but that may change as we go through the balance of 2023, but there’s certainly no indication of huge volumes of distressed sales looming.
After two years with our borders closed immigration is picking up sharply, and so we will add to Australia's population 200,000 immigrants a year, and they all need to live somewhere.
We are particularly looking to bring skilled labour into the country and these people will come with financial resources, adding to the number of buyers in the marketplace.
Rental crisis creates bigger buyer pool
Typically at this stage of the market cycle many prospective buyers would sit on the sidelines by renting a property to see how the market unfolds, but with our rental crisis that option does not exist.
The rental crisis is forcing people into buying properties and so we are now left with a situation that buyer demand continues to remain strong and above stock levels.
As Ray White is Australasia's largest real estate company commanding more than a quarter of all the country’s auctions, it can provide an outstanding straw poll of national activity.
Throughout the first two months of 2023 auction success rate under the hammer, or prior to auction, is hovering around the 70 per cent mark.
On average there have been 4.1 bidders per property. These are similar statistics to 12 months ago, and certainly reflect a market with strength not weakness.
This constant demand for a home, in an environment where stock is in short supply is the foundation of that strength. What has changed is the ability of buyers to pay the prices that they would have otherwise been prepared to pay.
Lending criteria has tightened and so there has been some softening in pricing through the start of this year, but that softening in prices is vastly different throughout the country. This is as a result of the pandemic, where we saw a huge shift in people's attitude to life resulting in extensive decentralisation and the move to the coast and the countryside.
Many parts of Australia saw drops in their population base while others made significant gains, and so the movement in real estate prices since the peak of the market is reflective of those population shifts.
What you will read in the newspapers or see on your TV will be reports reflecting anything but the above. The media contact me constantly asking about something that didn’t sell and that they wanted to have the facts around that particular situation and, if possible, interview the seller. The fact that perhaps 70 per cent of properties sold at auction does not attract their interest as it’s not part of a convenient storyline.
What should not be forgotten is that the worst time to have bought a property was during the boom.
The best time to buy a property is during a realignment phase as we have now. You will find more sellers are prepared to listen to your offers in this market than what would have ever occurred in the boom market.
As Warren Buffett has always said “be fearful when others are optimistic and optimistic when others are fearful.”