Why Spring Failed To Fire But Summer's Set To Sizzle

A funny thing happened on the way to summer this year.

Historically, the post-chill spring months from September to November are when the property market blooms once more in terms of available stock. Birds are singing, the sun is shining and there’s the hubbub of open-home crowds wandering through prospects, casting critical eyes and making rash judgments as owners take advantage of the beautiful weather to display their properties in the best possible light.

See... spring even brings out the poet in a quantity surveyor.

But this year was different in Sydney. A quick look at the SQM Research website showed available stock in some of our most active markets tightened up compared to last year.

Looking at total listing numbers for October this year compared to October 2018, and it’s obvious sellers kept their powder dry.

In the suburb of Sydney itself, for example (postcode 2000), listing numbers were down from 389 last year to 312 this year – a 20 per cent fall. Bondi's number dropped from 192 to 128 reflecting a 33 per cent reduction. Meanwhile in Paddington listings went from 84 to 61 (a 27 per cent fall) and Coogee’s dropped from 75 last year to 49 this year (a 35 per cent reduction).

Anecdotal evidence supported this too with many of my buyers’ agent mates claiming the rise in demand from their clients wasn’t being met with the usual wave of listings that hit around this time each year.

The cause

So why were buyers left wanting? Proverbial wallflowers at the Sydney real estate school dance.

I believe it has more to do with psychology than strategic financial thinking in most cases.

You see, late last year things were looking a bit dire in Sydney’s market. The tail end of the tight finance environment coupled with the post-price-peak blues.

Property owners who’d made a tidy fortune in equity gains over the previous half-decade were watching their wealth erode, and many may have felt there was more to come.

So, it was time to cut their losses and move. As a result, listing numbers at the end of 2018 were strong as sellers attempted to beat the market before it hit bottom.

Fast forward to pre-Spring 2019 and the real estate sector was showing strong signs of a bottom bounce (no… that’s not an exotic European dance move).

Finance rules had eased somewhat and confidence had returned. Buyers were having to work a bit harder to secure a holding and sellers started taking notice, so prices began to strengthen.

Of course, all this created expectation that once the weather warmed, all those vendors who’d been holding off for fear of taking a hit on price would front up and give selling a red hot go.

But, as it turned out, an improving market caused a counter-effect. To go a bit Dr Phil on you all, I think ‘loss aversion’ hit the collective seller pool and stymied enthusiasm.

Mass movement

Loss aversion describes why listings dried up. It’s a phenomenon that suggests for most of us, the pain of losing out is psychologically twice as powerful as the pleasure of gaining.

This means homeowners who had held on when the market started to soften from its peak were refusing to realise their lost equity by selling.

This would include people who had bought years, or even decades, ago. These owners had already made hundreds-of-thousands in capital gains, but couldn’t stand the fact their home was now worth 15 to 20 per cent less than it was 12 months previous.

So – they’ve decided to wait, which is a self-perpetuation state of affairs because fewer listings from scared sellers are helping drive prices back up toward their peak.

See… they were right to hold off all along!

My prediction is that as we reapproach that price peak, the number of listings will begin to rise. Hit that magic mark of the value apex once more, and plenty of sellers will overcome the mental threshold of loss aversion and look to list.

Spring psychology becomes summer reality

The most recent numbers show the market is on track to play out as expected.

An article in the Australian Financial Review on December 2nd based on recent CoreLogic data revealed the pace of price rises in Sydney is picking up.

According to CoreLogic, Sydney’s median price dropped 16 per cent from its peak in July 2017 to its low point in May 2019.

Since then, the market has clawed back eight per cent of that loss and is on track to recoup the entire downturn by March 2020.

I believe once we hit that tipping point, our fragile human egos will be sated and sellers will return. With that mental value-high hurdled cleared once more, those who had been pondering a sale will act.

So, market watchers, keep an eye on the cycle and see. My opinions about the future are a mix of evidence and anecdotal, and I’ve had enough conversations with clever property folk to feel a bit confident in the call.

If it happens, I’ll look like a rolled-gold genius. If not, well… at least I had an opinion.