What factors affect the property market?
Why do some suburbs perform better than the ones located right next door? Why does one type of dwelling take off while another stagnates and, then, soon afterwards the reverse happens?
We reveal what we believe are the four factors that tend to drive micro-markets in Sydney’s eastern suburbs.
Property markets don’t always act in unison
But before we do, let’s take a look at some examples of recent micro-markets in our area.
Earlier this year, we highlighted that Elizabeth Bay (12.5%), North Bondi (12.1%) and Bondi (9.1%) made Sydney’s top 10 for year-on-year growth for units, while Surry Hills (10.2%), Paddington (8.9%) and Vaucluse (8.2%) made it into Sydney’s top 10 for year-on-year house price growth. What made this startling was that it happened at the same time as the average Sydney dwelling price fell by almost -10%.
More recently we wrote about how houses far outperformed units in Paddington and Bellevue Hill, in contrast to what was happening in most of the city and the rest of the Eastern Suburbs. Then, at the end of July, a Domain article showed Vaucluse was leading the city’s house price growth while neighbouring suburbs didn’t necessarily move much at all.
But what causes this phenomenon to happen?
Calendar events and seasons can have a huge impact on the property market.
Obviously autumn and spring are popular times to buy and sell, and we see this reflected in peaks in the number of listings and sales volumes. CoreLogic data from July 2019 shows that the number of transactions increases in autumn and spring each year, with January always the lowest point of the year for real estate listings and transactions.
However, seasonality can impact suburbs differently. For example, the beaches markets can really heat up in summer, just as other markets go quiet.
This is because the beachside lifestyle is often at its best during the holiday period. If you’re selling an amazing Bondi or Bronte house with views, they’ll be all the better on a warm February afternoon compared to a cold windy day in July.
Depth of buyers
Often we see certain types of properties either go gangbusters or languish on the market solely due to the depth of buyers. Put simply, it comes down to supply and demand in micro markets: if there are 50 people looking for a studio apartment in Bondi and only five units listed, chances are these will sell quickly. If there are only four buyers looking, they simply can’t all sell and those that do may take a little while.
Individual micro markets can be quite specific and appeal to completely different buyers.
For example two- bedroom apartments are usually popular with entry level or first home buyers, while three-bedroom units are popular with downsizers and families. Demand for particular property types in a particular area can also change on a weekly basis, depending on how many buyers are out and about and what new stock hits the market.
For example, multiple properties going on the market at the same time, with the same price point and similar features can saturate or exhaust the number of buyers looking for this type of property, depleting interest, and reducing competition. Too many similar properties at once simply dilutes the buyer pool, and can have a big impact on prices.
On another level, last year we saw tighter lending criteria have a huge impact on lower price points under $3 million. However, the luxury market stayed strong with solid buyer depth, as buyers at this price point tended to be less impacted by lending issues.
We’ve written a lot about the impact economic factors can have on the property market because they’re undoubtedly one of the bigger forces. In our Market Snapshot we discuss these trends in detail – from the Aussie Dollar to share market volatility, interest rates and lending criteria, and budget decisions.
We’re currently seeing the effects of APRA’s changes to lending criteria coupled with two recent interest rate cuts. This has brought out first home buyers looking for entry level properties, with good sales being achieved for apartments under the million dollar mark in Randwick, Kingsford and Coogee.
We’re also seeing a lot of people upsizing and able to make potentially larger jumps as they upgrade as a flatter market and low interest rates make it a good time to do it.
Politics also plays its part. Earlier this year, the property market was quieter than usual. This was partly due to the impact of two elections (state and federal) creating uncertainty. Investors tended to be particularly concerned about the potential impact of Labor’s proposed changes to CGT and negative gearing. Many tended to take a “wait and see” approach until the Coalition win.
And finally, local drawcards
From views, to cafes and walkability, to commutes, or school catchments – we regularly have buyers request certain streets, suburbs, or a property with a particular aspect for very specific reasons. We see this especially in Paddington and Woollahra, with some buyers restricting their search to particular patches to the exclusion of others.
Sometimes a buyer’s reason for doing this is entirely reasonable; other times their narrow focus means they’re blind to properties that would suit them just as well or potentially even better.
For that reason, I always advise that one of the most important ingredients in any property search is keeping an open mind. You really never know what may be just around the corner.
Sydney’s Eastern Suburbs Market Snapshot
A detailed annual assessment of the property market focusing on the Eastern Suburbs of Sydney, Australia.