The Market - What's Happening Out There?

In writing this article I have looked back on my predictions for 2012 which were published in this magazine at the start of the year.

So far it seems that, unfortunately, those predictions seem to be fairly accurate.

On a positive note, the RBA has dropped rates several times and the general consensus seems to be that there will be another one soon, possibly in September’s meeting. This continued downward trend has certainly helped the market and the affordability of property everywhere, however other influencing factors have not been so kind.

Market confidence generally seems to have maintained a largely negative trend, primarily due to the continued instability of the Eurozone and its effects on the global economy and share markets. Let’s face it, having doom and gloom on the news every night with stories of further bailouts for Spain as well as Greece and share prices rising and falling daily, tends not to install a lot of confidence that many consumers need to “take the plunge” and take on a new large debt.

The other side of this is that there is generally a shortage of new properties being placed on the market as many people elect to stay where they are at the moment and play it safe.

On this basis I doubt that many areas of the state will see price growth over the latter half of the year, but hopefully this stock shortage we’ll keep a floor under house prices and we will not see falls either.

An area bucking this trend appears to be the lower end of the market with first home buyers and investors reasonably active in most areas.

Rentals still appear to be the most positive area of our business going forward with continued, but slowing, growth in rents and definitely more buying activity from investors in most areas. The surety of that extra cash flow for the office in these tight times is what many wise agents seem to be focusing on at the moment.

There is no doubt a pent up demand building in the market, people want to buy their first home or move into a better one and in many cases can already afford to, but that confidence is lacking. If we can see out this quiet period I am sure that some very good times lie ahead as that pent up demand is released in a flood of activity as soon as Europe can cure its woes.

 
Hang in there and EAC will hang in there with you, giving you the tools to make the most of whatever market we have to deal with.

Why Use A Full Service Agent?

Private sales of homes have always been around, we have all heard stories of owners who have supposedly sold their own home and avoided paying an agent commission. The big question is – have they really saved money, or have they actually cost themselves money as well as the time and hassle involved?

When selling what is most likely your biggest asset you want to be sure you get the very best price, and this is exactly what a full service agent is trained to do and they have the tools for the job.

Some of the factors that help him do his job are:

1. He works with property and people every day, he knows the market, what is in demand and what is not.

2. He has access to the latest accurate sales data, he knows what other properties actually sold for, this is often very different from what they were advertised for or what the owner may tell you he sold it for in order to save his pride.

3. He has access to this magazine and its sister website, the leader in the Illawarra as well as realestate.com, the largest property internet site in the country, both of which do not accept private ads. This alone dramatically cuts down a private sellers’ ability to connect with a potential purchaser who will probably never know their house was for sale.

4. He is a trained negotiator, he can be the middle man that gives you advice and time to think so you get the best deal, it is very hard to do face to face with a buyer who may well be more skilled at negotiating than yourself.

5. An agent keeps a data base of qualified clients that he can tap into immediately, people who he knows are genuinely looking for homes, not just ‘tyre-kickers’.

6. He looks after the sale once it is negotiated through until settlement. There are often 2, 3 or more issues that come up after a sale is made that need to be resolved and may require further negotiation.

The peace of mind that these factors bring to people who engage a full service agent can be compared to the pitfalls a private seller will face:

1. Firstly it is pricing the property correctly. Sure people can check the internet and compare it against what you think are similar properties, but they have not been inside those homes to be able to properly compare them to their own. They also don’t know what they actually sold for, unlike an agent who has the data. Overpricing can be just as damaging to a potential sale as underpricing.

2. Their avenues of advertising are limited and expensive, they don’t get access to the major internet sites, the dominant publication and will potentially miss their “dream buyer” because they never knew their home was for sale.

3. The time it takes to show prospective purchasers through, they often want to come through while you may be at work which may be inconvenient for you or on the weekends when you have other plans.

4. If buyers know you are selling privately usually the first thing they want to do is reduce their offer by the amount of the commission because they know you are saving it, they want the benefit of the saving you are supposedly making.

Think of it like this, if you had to go to court would you represent yourself or get a good solicitor? Even solicitors rarely represent themselves, they know the value of good advice from a third party. They have a saying, “a solicitor who represents themselves has a fool for a client”. The same goes for selling property, a good agent will usually negotiate enough extra to cover their fee plus save you all the hassle.

Why would you put yourself through it and usually cost yourself money as well. Get a professional and have them earn their fee.

What's Ahead For 2012...

The new year has arrived and as usual it is full of predictions, so I thought I would throw mine in as well and we can all judge their accuracy as the year progresses.

Obviously some of the factors that are going to affect our property markets are how the R.B.A. reacts to our two speed economy, the European debt crisis and its impact on financing overall, with a general tightening being likely and I believe, more importantly, how both of these impact on the confidence of the average consumer.

With almost 100% of economists agreeing, it seems a reasonably safe bet that the R.B.A.’s first meeting of the year in February will deliver another cut in official rates. Interestingly the ANZ Bank in particular has disengaged from this cycle and is announcing its own rate decisions each month prior to the R.B.A.’s monthly meeting. They cite other global funding issues being equally important as the R.B.A.’s official cash rate in defending this decision. January is the first month for these announcements so it will be interesting to see how they move, but with competition increasing within the banking sector generally I think we will see rates fall over the year, which can only be a good thing for our industry as a whole.
The European debt crisis still has a long way to go in my opinion, with many twists and turns throughout the year to come. I am neither wise enough or game enough to predict the eventual outcome but I am sure the constant reporting of this major bad news story in the media will continue to have a negative impact on consumer confidence generally as well as share prices across most sectors. It is this lack of consumer confidence that looms as a major threat to the year ahead, not just for our industry but the economy as a whole.

The State Government decision to remove the Stamp Duty concession for first home buyers of existing homes saw a rush of activity from this sector at the end of last year, but if history is any guide I don’t expect we will see many first home buyers now for the next 6 months or so, as was the case when the government removed the extra $7,000 first home buyers grant a couple of years ago. These types of incentives tend to bring demand forward and then leave a hole when they are removed.

On a positive note I believe we should see strong demand from investors with rents continuing to climb and vacancy factors at near record lows in most areas. This is leading to increased rental yields generally and in a number of cases, positively geared investments. This trend is likely to continue, particularly if capital growth is subdued and interest rates continue to fall. It may also see some frustrated renters “bite the bullet” and look to buy, particularly if affordability improves.

Over the whole state I feel the market is likely to remain patchy, some areas doing well while others struggle. Local issues will have an impact as the floods in the Northern Rivers area and the mass layoffs by Bluescope in the Illawarra did during the year just past.

So it looks like a year of both challenge and opportunity, and I personally hope that we can assist our members meet those challenges and capitalise on the opportunities going forward with our cutting edge technology, cheaper prices and great staff giving great service.

All the best of the year ahead.

Dale Whittaker
E.A.C. - Chairman

Where to In 2011?

My crystal ball is saying the real estate market for the first quarter of 2011 looks like being a fairly tough place. Anecdotally activity in the last quarter of 2010 has been subdued in many areas of the state and building starts and finance approvals are also both down confirming this.


As always there have been pockets that have managed to miss the pain but it would appear that they are few and far between.

Latest comments by the R.B.A. give some respite as they indicate that it is unlikely that we will see any further interest rate movements until at least the end of the first quarter, cold comfort to a degree I know, as much of the damage has already been done with recently released figures showing housing affordability in NSW currently at one of its lowest levels in years.

Even the weather seems to be against us at the moment, with parts of the state experiencing flooding and extreme weather events as I write this article and the long range forecast is for more of this all through summer. I guess we should be thankful we are not farmers, they have it even worse.

On the upside, rental demand remains strong, with increased rents leading to higher returns in most areas. This will not only help our Property Management department profits but should see a continued influx of investors into the market chasing these attractive returns.

This next quarter will also see the introduction of the new Residential Tenancies legislation. As an industry I believe we need to talk to and educate our landlords as soon as possible in relation to these changes, before there is a quiet news week and some sensationalising journalists try to create panic for the sake of selling a couple of extra newspapers and we get left to deal with the paranoia.

E.A.C. has run a series of seminars on this topic in recent times and will continue to update you as regulations are firstly released and then tested at tribunal.

As Geoff Hunter showed in his seminars there are a number of positives for landlords in the new Act, it is not all bad, and we need to emphasis that to our clients before the scare stories start.

I believe the sales environment will stay tough in many areas, listings are down and look like remaining tight and now it seems as though prices are also dropping in certain areas. Managing vendor expectations will be of paramount importance in the coming months. All the good E.A.C. agents will be practising their scripts and dialogs in role plays I’m sure.

The upside for the good operators is that they tend to increase their market share in tough times and what doesn’t kill us will make us stronger.

Wishing everyone success in the year ahead and happiness throughout this festive season.

Dale Whittaker
E.A.C. Chairman

Where to for the Housing Market in 2010?

There are a number of factors to consider when trying to look into the crystal ball and predict what is going to happen to residential real estate in the Illawarra in the next 12 months.

The primary driver at the moment would appear to be a wide spread shortage of property for sale. Coupled with slow land releases and a lack of major unit development at the the moment, basic supply and demand economies would indicate upwards pressure on prices.

As far as demand is concerned, there seems to be no shortage of buyers for property at the right price. Investors are starting to come back into the market, taking up some of the slack left by the drop off of first home buyers after the extra subsidies ended on 31 December 2009.

Rises in prices will only be modest however as several negative factors will have an impact. Firstly the 3 interest rate rises of recent times and the probability of another 25 basis points on 2 February 2010 after the Reserve Bank Board meets, along with some job insecurity in the region.

Overall, however I think that the market will be reasonably positive with modest price growth throughout the coming year.

First Home Buyers Grant Reduces

At the end of this month the first home buyers grant reduces from $14,000 when purchasing an existing home to $10,500. This should not be seen as a reason for first home buyers to panic. When looked at in the cold light of day it should have little or no effect on your decision to enter the housing market. The reduction of $3,500 compared to the start of the year when buyers were often in bidding wars and / or races for contracts it may actually be a better time to buy now than it has been over the last 6 months. You will not have quite the same pressure to make a snap decision about your biggest purchase ever, and your bargaining position may be better if there are not as many other purchasers out there.
 I do believe that the next 3 months is a good time to secure your first home as there may well be a lift in prices before too long. This will mainly be due to a supply and demand imbalance. The new home starts in the Illawarra continue to be at record lows which will bring further pressure on existing houses. Basic economics states that if more people want to buy a commodity than there are of those commodities on the market, prices will rise. We are already seeing a drop in the number of existing homes on the market compared to the normal influx of spring activity so this points to price rises in the future.
 The prospect of interest rates rising again will make some people nervous however the commentators seem divided as to when & how much they will rise. It is inevitable that they will rise of course, they are at historic lows, but it is my belief that the rises will be very cautiously implemented by the Reserve Bank as they are unsure about the global outlook and will definitely not want to be blamed for stalling the Australian economies recovery.