Is there a silver lining to this cooling market?
By Craig Gibson Published March 13, 2019 Last updated on March 13, 2019
Feeling a bit spooked by the cooling market we find ourselves in?
If you are thinking of selling your property a falling market can be a little intimidating, and definitely unfamiliar territory if you have invested in property over the last decade or so.
But something had to give with the runaway market we have experienced, and that can be summed up in one word: affordability, or rather a distinct lack of it. Buyers - particularly first time buyers - were simply unable to get a toehold in the market.
The perfect property storm
According to CoreLogic, Australian dwelling values declined -4.8% over 2018, the weakest housing market conditions since the GFC era. There is also new housing stock - primarily apartments - set to come onto the market at a time of tightening bank-lending standards.
"According to CoreLogic, Australian dwelling values declined -4.8% over 2018, the weakest housing market conditions since the GFC era."
This is essentially a perfect storm if you are a seller, but is there a silver lining to the slowing market? The good news is that you can still turn a profit, the trick is to know how to take advantage of the current market conditions.
First let's remind ourselves how we got here and what we mean when we say a market is cooling.
What is causing our property market to cool?
When markets 'cool' house prices begin to drop or grow at more moderate levels. A number of factors are behind the current cooling market, specifically:
Housing affordability, or a lack of it, has finally reached a peak and buyers are currently unable or unwilling to enter the market.Tighter lending criteria, set by the Australian Prudential Regulation Authority (ARPA), have impacted the market as less people are able to qualify for a home loan.The major banks have responded to criticism from the financial services royal commission, and tightened their lending practices.Wages growth is weak, in many cases it is barely beating inflation, so people have less income to invest in property.Mortgage interest rates are rising, with three of the four major banks lifting their rates in the late 2018 - making property investing more expensive.
Now let's take a look at who can take advantage of a cooling market.
Who can benefit from a falling market?
Market conditions always create winners and losers, and a cooling market is a silver lining for some, though not all.
The first thing is to know that if you are thinking of selling now that there is no longer the urgency for buyers to secure a property. Most are quite happy to bide their time and wait for the market to drop further - which is what many pundits predict will happen. This is good news for first home buyers, where falling prices will make it easier for them to save for a deposit.
In terms of who can benefit from these conditions, a cooling market is great if you are an upsizer or want to move to a better post code. If you are selling and upgrading in the same market or price range, you are likely to be able to buy at a cheaper price and won't lose money. This could apply to scenarios such as a family upgrading to a larger house from a unit, or retirees looking to downsize and get more for their money.
"There is evidence that more expensive properties are recording bigger falls in value..."
There is evidence that more expensive properties are recording bigger falls in value, with CoreLogic finding that, 'properties (valued at $1,104,592 or more) recorded the largest value falls (- 9.6% for the year and -4.2% for the quarter)'. This makes many nicer post codes and properties more accessible to those considering selling and upgrading.
This is based on data for the 12 months to December 2018, and contained in the CoreLogic Decile Report, which analyses the market in ten groups (deciles) based on property value.
But is it a good time to sell?
Is now a good time to sell?
It really depends on your circumstances and how long you've held your property. If you bought it in the last two years, you are unlikely to break even. If you bought in the last five to ten years or longer then you are still looking at a healthy profit.
For example, if you bought a house for $650,000 in 2010 around Sydney's outer ring and it's now worth $900,000, you're still up $250,000, despite the fall in values.
In a recent interview, realestate.com.au Chief Economist Nerida Conisbee indicated that house prices are up 35% over the last five years and some 71% over ten years - healthy capital growth for those lucky enough to be in the market then.
"...Chief Economist Nerida Conisbee indicated that house prices are up 35% over the last five years and some 71% over ten years..."
Be quick to act though as this is likely to erode over 2019, with most property analysts predicting further falls for the market.
7 ways to sell your home in a cooling market
If you need to sell your home in a falling or cooling market be prepared to work harder for your money - but there are ways of standing out from the crowd. Look to:
1) Choose a knowledgeable local agent who is able to give you an honest appraisal and help set a realistic sale price.
2) Price your property competitively, with a keen eye on the local market and recent sales.
3) Be prepared to wait longer for the right offer as properties take longer to sell in a bare market.
4) Invest in getting your property looking its best - including having a spotless, decluttered interior and eye-catching outdoor areas for maximum kerb appeal.
5) Consider vacating the property - either you or your tenants - and have the property styled and photographed by a professional for the best possible presentation.
6) Invest in the best marketing plan you can afford, so you reach the most buyers possible.
7) Decide on the best method of sale for your area. Auctions can help create a sense of urgency, but if clearance rates are low then opt for a straightforward sale.
So if you are looking to sell or upgrade, don't let all the headlines and talk stop you from following through. As you can see with a little know-how and the right agent, you can make the best of a cooling market.