As we enter the most beautiful and our favourite season of the year on the coast, there is a lot going on in the real estate sector so let’s try and demystify what’s actually happening.
The easiest way to understand any property market is to observe what is happening in regard to the group psychology of the herd. As we mentioned in previous reports there is an overarching national sentiment and then there are local factors that influence individual property markets around Australia. This is similar to the share market where there is a general sentiment of the total index and then how investors feel about individual companies that are part of the index.
The easiest of these to observe is the overarching national sentiment because of its wide scale nature. Prior to the interest rate cut the herd psychology was of one uncertainty of what to do. There were no clear directions and plenty of distractions. What the interest rate does most importantly is confirm the trend in interest rates. If you are trying to make a life changing or significant financial decision you are more likely to be comfortable to do so if you have a clear (as possible) economic pathway ahead. So this interest rate cut was much less about the number and much more about confirmation of the trend. For our coastal buyers, this is particularly relevant as the majority of our buyers are asset swapping. That is selling one asset (usually in Melbourne or Geelong) to fund the purchase of a coastal property.
You can only see the peaks and troughs of property markets in hindsigh and we are sure that, outside some unforeseen international black swan event, that this recent interest rate cut will be seen as the bottom of the market for this cycle. What you will see next is that engagement levels will increase. That is the amount of participants in the property market will increase because, as mentioned, they are more comfortable with the path ahead now that the interest rate trend has been confirmed. This will include the amount of both buyers and sellers.
Buyers will see that prices are stabilising and therefore comfortable that if they buy that prices are unlikely to drop and sellers will be more confident that they will find a buyer as they see sales turnover increasing. Sellers usually turn into buyers as they asset swap to suit their current lifestyle wishes or needs.
Property market commentators often overlook how pent up demand can affect property markets and with an ageing demographic, like we see in our service areas, many are running out of time and want to get on with their lives rather than wait endlessly for “the right time”. Like property market peaks or toughs “the right time” can only be seen in hindsight, as we hear from many of our vendors who wish they had sold in the Covid period. The saying “its all easy in hindsight” is particularly relevant but it’s simply not the reality of most people’s lives. They are usually more influenced by where they are in their lives at the time of transacting. The increase in engagement levels are usually first seen in the capital cities and will be witnessed in the numbers of properties going to auction and then in the auction clearance rates. The auction clearance rates may not move dramatically up in the short term as the pent up demand from sellers is expressed and properties for sale actually increases. If the clearance rates hold in the mid 60% range or creep above then you can be assured that the market is active and the sentiment will steadily improve. As the herd witnesses this increased activity they will be more comfortable to engage and potentially facilitate competition for properties. This is the environment where price rises could occur.
Early reports support this assumption with CoreLogic reporting a modest increase (+.03%) in their National Home Value Index in February after some softening in late 2024. More interest rate cuts will continue to support this assumption. Historically, once the trend in the capital cities is confirmed the positive sentiment usually extends to the regional and coastal markets as the asset swappers who have sold in the metropolitan markets deploy their capital to facilitate their lifestyle or stage of life needs.
At the coalface we are already seeing this in our service areas. Longer but unconditional settlements are not uncommon at present to allow a buyer to secure their future coastal home and allow them to sell in the city without time pressure. Often these longer settlements do not go full term as the metropolitan property sells and settles sooner than the settlement period on the contract of the coastal property.
We hope you found this report informative. If we can be of any assistance in any real estate matter please do not hesitate to call.