What Happens Now?

Apart from the fact that the Mini Mos is only 8 days away the buzz around town this week has been…you guessed it…interest rates. We are now considering putting swear jars at our open houses for anyone who mentions rate rises…c’mon people is it really that much of a surprise?

So yes it happened….shock horror, rates have gone up and more importantly the RBA have signaled that they will likely go up again.

So what does this mean for real estate?

Property prices in most areas started falling about 8 weeks ago. The meteoric gains of 2021 have largely been erased and if we track the trajectory of recent price rises relative to rate cuts then we will likely be able to track future price falls relative to increases. Sorry...my theory is…if rates are going up by 1.5% then your house is probably worth what it was around 1.5% ago (which for the record was 2019 - 2020).

This week I have pulled out my crystal ball to tell you what I think the next few months will look like…but first…a little story.

In late 2007 I started my own real estate business. I had a laptop, a cat and a belief that telling the truth (revolutionary I know) and providing good service would mean I could probably make a living.

With $10,000 to my name I signed up with RPData, REA & Domain and registered the company. It was so exciting….then…Bear Stearns collapsed. To be honest I didn’t know who they were…but the GFC did.

I thought I was a dead duck. The experts came out in droves and predicted the greatest real estate crash in history, 30-50% falls but alas it didn’t happen. Prices did fall about 10-15% but then stagnated, to the frustration of many (mainly home buyers).

This led to a 12-18 month period of what I would call a frustrating market. Auction clearance rates dropped to 40%, the volume of sales fell and lots of real estate agents left the game.

I think the biggest thing that underpins real estate values in Sydney is the fact that it’s illiquid, it’s true that a property is only worth what a buyer will pay but crucially it’s also only worth what a seller is prepared to accept.

So what did the GFC teach me and why do I think prices won’t fall as much as your super negative uncle does?

Here are three reasons:

*Vendor stubbornness - like it or not, a lot of people in affluent areas can afford to stare the market down…and they will. Australians have an innate belief in real estate and for many this means holding out and weathering the storm.

*Rents are on the rise. For years now we have heard investors complain ‘I have nowhere to put my money!’ Well, now with many buyers deciding to rent and ‘see what happens’ the demand for rental properties is on the up. This is a familiar tidal movement, interest rates go up, so do rents. When rent returns become more attractive investors come back.

*Lower supply - most people that own good property tend to only sell it in a good market. Quality family homes in Sydney are always in short supply…sorry folks, in any market good Sydney real estate is never cheap.

Speaking of cheap - money is actually still relatively cheap. If you need a new home now what should you do? Buy, lock in a decent rate and live happily ever after or do you rent? Wait for rates to go up and maybe buy a home down the track for a bit less? Same same.

Sorry folks, I know headlines are more exciting but reality is far more boring.

I think y'all just need to calm right down.

Until next week,