There is no doubt that the Sydney property market is continuing to shift following a record year. We are seeing movement in terms of price expectations and the volume of properties for sale. This is leading to buyers being less certain about entering the market right now.
Data released from NAB in July 2022 shows nearly one in five Australians believe now is a good time to buy a home. This is down from nearly one in four on the previous quarter.
NAB is also predicting a return to January 2021 prices in the next 18 months. This would be a price reduction of approximately 18%. Although the percentage is significant, it does highlight that property prices would be returning to levels experienced in the medium term. It reminds us that property buyers who have a long-term outlook, are better positioned to observe the price changes at an arm’s length and ride the waves of short-medium term volatility.
The data also reveals that there is a steady intention of people looking to buy. Despite interest rate rises, buyers are still active in the market, they are just taking their time. Buyers do not feel as rushed which is a product of the obvious slow down in prices coupled with an increase in total properties listed for sale.
Total properties for sale are not to be confused with new properties listed for sale. Total properties includes both new and existing listings. And the longer a property sits on the market i.e. ‘days on the market’, the longer the period the property is counted in the overall number of listings until it is eventually sold. To prove the point, in the three months to July 2022, the median days on market in Sydney was 35 days compared to 25 days the same period last year.
With a combination of slower buyer activity and properties taking longer to sell, buyers do have more bargaining power but are warned against speculating on the market. Buyers may be tempted to wait for that perfect property to appear, but we know that chasing perfection is not ideal because it rarely if ever, exists.
Holding onto the belief that an ideal property at a bargain price will appear at a later date, is known as the Nirvana Fallacy. It is defined as comparing actual things with unrealistic, idealized alternatives. So buyers, do not despair! This is a common way of thinking. And when we experienced such dramatic increase in property prices, smashing records in such a short period of time, buyers could be forgiven for thinking that such volatility will swing in the opposite direction. However, as we see here, this is a common fallacy and buyers must be conscious that this bias may be creeping in when searching for property.
The issue that buyers face in this market is that even if the perfect property does exist, it will still command a premium because good property still attracts buyers and drives up competition. For example, in August 2022, a property in Annandale with a buyer’s guide of $1,800,000 sold at auction for $2,165,000. There was a line of bidders registering and there was fierce bidding by several bidders. This is an example of a property with strong owner occupier appeal being well located and having large bedrooms, parking, open living areas, good natural light, privacy and modern appliances. Ticking boxes that appeal to the broadest range of buyers creates more competition and drives prices up. Great property still sells well in any market.
How do buyers overcome indecision?
Bias is something we all fall prey to, and the idea of the Nirvana fallacy may resonate with buyers in this market. To overcome indecision and take action, buyers should consider the following:
- Redefine Your Goals
Setting the right goals is really important and is the first step in allowing you to meet your purchase objectives. Goals can be confusing and overwhelming if they are set without direction. To set goals with clear direction, buyers need to be specific by considering the who/what/when/where/how:
- Who is involved in the purchase?
- What is the purpose of this property purchase?
- When do you want to action the purchase?
- Where does this property fit into your personal/financial plans?
- How long is your time horizon?
The answers to these questions will define your goals. The answers also provide clues to the milestones and actions you need to take to reach the goal. Working backwards in this way reduces the chances of creating ambiguous and unrealistic goals and instead, enables you to set and achieve your goals suited to your own needs and circumstances.
- Manage expectations; is your brief realistic?
Revisit your brief and set criteria that are realistic and reflective of the market conditions. When we work with our clients, we go through a process of identifying and refining a property brief that suits the short and long term needs of the client. Defining needs and wants that are achievable in today’s market helps buyers to focus on their own race instead of getting caught up in trying to predict the market.
Once the key criteria are identified, test if the brief is achievable. Look at what property is selling for in the areas where you wish to purchase. Do your brief and budget marry up to the typical property prices of actual properties that have sold in the same area?
- Focus on blue-chip property
Blue chip properties are always in demand. If you have a long-time horizon, then reducing the number of options and aiming for a blue-chip property could help you ride the waves of market peaks and troughs by holding its value.
To identify blue-chip property, critically analyse both location and dwelling type. The goal is to identify scarce property in sought after areas that appeals to the broadest range of demographics. This is because the forces of supply and demand matter and if you have a scarce asset that the majority of buyers want, it creates competition and strong re-sale potential in any market.
If you or your client are grappling with the changing market conditions and need support to take action with your property purchase, reach out to Nick on 0405 134 645 at Buyer’s Domain for a conversation on how we can help.