The surprising corner of the housing market showing signs of recovery

Australia’s premium property market is showing early signs of recovery, but Ray White Group’s chief economist cautions it is far too soon to call it a genuine turning point.

Nerida Conisbee says the fate of the top end of the market rests almost entirely on the Reserve Bank of Australia’s next interest rate decision on September 29.

“At this stage we don’t know how things will go,” she says. “A lot of it rests on whether interest rates increase – that’s the critical factor.

“Data shows national house values fell 3.3 per cent over the three months to August, led by Sydney and Melbourne. More recent indicators, however, suggest the premium end is beginning to turn.”

Conisbee says the larger structural problem lies at the affordable end of the market, where investors have “withdrawn dramatically” amid uncertainty about negative gearing and interest rates.

“Even if the top end does recover, the more affordable end is looking very weak at this point and is unlikely to improve without rate cuts,” she says.

Conisbee says the strongest increases since the release of the federal budget in May have been in premium markets in Sydney and Melbourne.

“Our open home data is providing one of the clearest early signals,” she says. “We track around 13,000 open homes each week, giving us a timely read on buyer activity. National attendance fell sharply through the first half of the year, from around 4.5 people per open in January to close to 2.0 by July.

“Since then, the decline has stopped and attendance has edged back up to around 2.2 people per open. Conditions remain much weaker than earlier in the year, but buyer demand is no longer deteriorating at the same pace.”

The improvement is more apparent in Sydney and Melbourne than in other capital cities. Sydney is averaging 2.3 attendees per open home, while Melbourne, at 2.2, has recovered to roughly its pre-budget level.

The more recent movement is stronger again. Over the past eight weeks the number of attendees per open has risen in Sydney and Melbourne. However, Brisbane, Adelaide and Perth remain well below their pre-budget levels, the Ray White Group data shows.

“Sydney’s eastern suburbs have added 0.8 attendees per open, while Melbourne’s inner south, North Sydney and Hornsby, and Melbourne’s inner east are each up around 0.6,” Conisbee says. “These are also areas that have experienced some of the largest price corrections over the past year.”

Buyer’s advocate Jack Johnstone, director at BuyerX Bayside in Melbourne, agrees that the premium market seems to be stabilising.

“There was a disparity in the past six months – the difference between what buyers wanted to pay and what vendors wanted,” he says.

“That gap is starting to close, but I feel that it is more from vendors being receptive to accepting offers that they might have rejected six, nine or 12 months ago.

“There are definitely buyers in the premium market who are now willing to spend more on their primary place of residence.”

Johnstone, who works with buyers seeking properties in Bayside suburbs including Brighton, Hampton, Beaumaris, Elwood, and Sandringham, says buyers who want to move into a larger home seem to be willing to take “a little bit of a loss” on their smaller home.

“If you’re upsizing into a more expensive home, the quid pro quo is that you are losing on yours but gaining equity in the home you are buying,” he says.

“In terms of affordability, there’s never been a better time to be a buyer. But a property still must be priced correctly.”

Johnstone says that buyers are keen to secure houses that do not need repairs, updates, or renovations.

“People hear horror stories about renovations blowing out in budget and time, so they want to be able to walk into somewhere and not need to do any work.

“The other side of that is that I’m seeing vendors do work prior to listing their houses. Agents are encouraging vendors to do work that will bring in buyers, such as sanding and polishing floors and replacing curtains.”

This coming weekend is expected to be a busy one for auctions in Melbourne.

Domain data shows that Melbourne’s auction clearance rate last weekend was 57 per cent, compared to 71 per cent this time last year.

Sydney’s clearance rate was 54 per cent, compared to 74 per cent this time last year.