Will the property boom last?


Our local property market began 2021 by breaking new records. But what, if anything, will cause the current booming real estate market to end?

The start of this year has been an impressive one for Sydney property and The Lower North Shore property market has been particularly strong. On 3rd June 2021, The Mosman Daily reported a local auction clearance rate of 95%. The same weekend, the North Shore Times recorded a local auction clearance rate of 100%.

These are unbelievable numbers when you consider Sydney’s average auction clearance rate is usually in the 60s, and anything over 70% is viewed as a seller’s market.

We’ve been in property a long time but this really is unlike anything we’ve seen before. But, as you know, nothing lasts forever - especially in the world of real estate. One day the property boom will be over. The question is when and how that will happen.

Here is our take on what could cause an end to the property market boom.

1. A change to interest rates or lending policy

Perhaps the biggest factor that drives rising prices is how much money people have to spend. And, on that front, these are unprecedented times.

Interest rates have never been lower than they are right now, with many lenders offering fixed rates below 2% - something unthinkable through most of the past few decades.

Low-interest rates tend to mean people can afford to borrow more. For instance, if you were to borrow $1 million on a 30-year principal and interest home loan when interest rates were 5%, your monthly mortgage repayments would be $5,368 a month. At 2%, those repayments fall to $3,696 - a saving of $1,672.

When people can afford more, they’re often prepared to pay more too.

But we all know that could change. Although the RBA has said it will keep interest rates low for some time, it could be forced to put them up, especially if the economy continues to grow strongly and house prices continue to rise. Alternatively, banks could be forced to tighten their lending criteria, meaning people could borrow less. This is just what they did in 2017, bringing to an end our last hot property market.


2. A stalling economy

When people are confident about the economy, they’re often prepared to pay more for a home. That’s because they’re also usually confident their job will be safe or their business will continue to trade and they’ll be able to keep paying the mortgage.

Right now, consumer and business confidence are sky-high. In fact, the ANZ Roy Morgan Business Confidence Survey is higher than at any point since November 2013. Add to this low unemployment and GDP growth that’s higher than any time since the 1970s, and you can see why people are prepared to spend on their homes.

Again, this could all change, especially if we get another local COVID outbreak or as the pandemic spirals around the world. And, when the economy suffers, usually house prices do too.

Another factor that could affect both our economy and house prices are lower immigration levels. If the borders remain closed and we stop taking in the same number of people this could, eventually, act as a drag on rising prices.


3. People stop upsizing in the same numbers

One of the biggest market segments driving today’s hot property market has been people looking to upsize. During the height of the pandemic, a lot of us were spending a lot more time at home.

Naturally, people began thinking about how to make themselves more comfortable. For many of us, that meant a major renovation. For others, it meant finding a new address where we had more room to move.

The rise of house prices in regional areas is an obvious example of this trend. But so too is the widening gap between house price and apartment prices, as people look for more space and privacy.

As we return to normal, people are spending more time outside of home once again - going back to entertainment venues, restaurants and cafes. If this continues, and people spend less time at home, we may see a return to a normal market, where upsizing becomes less of a priority.

4. There’s an oversupply of property

With fewer listings on the market compared to normal, many buyers in today’s property market have had trouble finding somewhere that meets their criteria. When they find something good, there are often several other potential buyers who want it too. This starts a bidding war, driving prices up.

But as more property gets released onto the market, there is naturally less competition. Buyers have more options and don’t have to stretch quite as far as they once did.

Already, we’re seeing more listings than we were a few months ago - although nowhere near enough to stop prices rising. Where this could change most easily is in the apartment market, where demand is softer and several new developments are waiting to come online. And, if apartment prices start to fall, it could drag the whole property market down with it.


What does the future hold for the property market on the Lower North Shore?

While the current boom will end one day, our view is that rising property prices still have some way to go yet. From what we’re seeing, there are still far more buyers than sellers in the market and, while more property is coming up for sale, there isn’t enough to meet the current demand.

Our view is that property prices are likely to continue rising throughout 2021, even if they don’t rise at quite the same pace as they did over the first quarter. We also believe that, unless we see a severe economic shock, prices won’t collapse.

That said, it’s impossible to forecast exactly what the market will do. What we do know, however, is that those buyers who hold off expecting prices to crash are almost always disappointed.


Want more?

If you’d like to know more about the current market or receive an appraisal of your home please feel free to get in touch.