Market update – The early trajectory for 2021: January results, regionals v cities, what’s in store for CBD, NZ targets investors, impacts of the pending fiscal cliff, why the RBA says rates won’t rise for 4 years (Ep. 88)

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In this week’s episode, Dave, Cate and Pete take you through:

The current property climate. We may be heading towards autumn, but temperatures are going through the roof as the property market heats up. If you don’t want to get burnt on the property hunt, don’t forget to slip, slop, slap – get clear on your strategy, determine your price range and study the comparable sales.
Property values for January are in the books. The national property market has started off the new year on a strong footing, as expected, following the seasonal slowdown. The trio take you through the January highlights.
Beware the data lag. With the market surging forward at this pace, November’s sales won’t cut it anymore. The Property Buyer shares her tips on how recent your collated data needs to be and warns that this data may not be fool proof either.
Regional areas and days (or hours) on the market. Because regional areas are less reliant on auctions, days on market tend to be shorter as a direct reflection of private sale pricing regimes. At the coal face, bullish offers are being made to quickly snap up properties. Remember, the better the quality the property, the faster it is likely to sell. If you’re targeting top-shelf properties, you need to be prepared for competition, and be prepared to make quick decisions.
CBD apartments and expected immigration. The CBD apartment market continues to languish, partly due to the great lifestyle re-evaluation and flight to larger properties and also lack of international students. Mounting pressure to bring in international students and lower-level workers for our agricultural industries may open up boarders in mid to late 2021 – watch this space.
New Zealand and macro prudential measures to cool the market. Kiwi house prices have taken flight and over the last 12 months, resulting in an average capital growth figure of 17.3%. The NZ Central Bank has slapped restrictions on investors and 60%+ LVR lending in a bid to put out the property fire. The trio explain the outlook for Australia and when our regulator is likely to pull the trigger on similar macro prudential measures although they note that unlike NZ, we haven’t really seen investor numbers represented in our market yet.
JobKeeperand JobSeeker coming to an end. The Property Planner, Buyer and Professor share their predictions on the impact to the property market, when both JobKeeper and JobSeeker come to a close at the end of March.
Interest rates won’t rise for 4 years. Governor Lowe has adjusted his expectations for the cash rate to stay at 0.1% from 3 years to 4 years. The Property Planner explains the motivations driving this monetary policy.
Vaccine success in Israel. The global guinea pig for vaccines, Israel, has turned in a positive success story as more than 50% of their population has been vaccinated. Effective vaccines are critical to the success of macro markets and the economy, so far, the outlook is promising.
And of course, our “gold nuggets”!

Resources:

Show notes

The current property climate
The challenge in Vic – panicking agents, vendors and buyers – brings it forward and chops out people who are not ready
Next weekend’s auction are now happening this week, because of the uncertainty.
The FOMO out there is phenomenal – if you already own property, the value will be climbing. A feeding frenzy
88% clearance rate in Melbourne, even though we’ve been locked down – that will be revised down. Only 110 homes were withdrawn, the others went ahead or were sold prior.
Adelaide was strong as well.
If you’re not really clear on your strategy, your price range, the comparable sales in the market and property you’re targeting – if you’re not ready to move same day and pounce, you’re not that serious about buying property.
January results
The national property market has started off the new year on a strong footing, as expected, following the seasonal slowdown.
Dwelling values rise across every capital city.
The national index increased by 0.9% over January, holding steady from 1.0% in December, and on track for annualised growth above 10%, which we predicted in November.
Darwin clocks in 2.3% value increase for the second month in a row, and now sits at value growth of 11.4% over the last 12 months.
Hobart and Perth started the year strong, with 1.6% growth – our predictions for the winning capital city is Perth
Canberra continues to outperform, with 1.2% growth in January and the second highest increase in values over the last 12 months of 8.5%.
Regional areas continue to outperform capital cities, recording 1.6% growth in January V 0.7% in the capital cities, and 7.9% over the past 12 months V 1.7% across the capital cities.
Melbourne and Sydney lag at 0.4% but may be a function of low activity in January
Data lag
How many agents are reporting data at point of sale
How many are unconditional?
How long is a settlement period? If not reported by the agent, it will hit the shores of valuer general once it settles -this could be 60 to 90 days after purchase. 2 and a half months have rolled past before data gets collated.
Banks are pretty slow with getting on with things at the moment, which means that people are not going for 30 day settlements.
We’re just using Jan and Feb data
Behind every output, there’s an algorithm – the information is as accurate as the quality of the algorithm – Domain data is different to CoreLogic.
Regional areas
Regions – days on market tend to be shorter, they’re not as auction-centric as in Melbourne.
Just because the agent says it’s running to auction, you cannot rely on that.
Sometimes an auction cannot sell prior – trustee, family law sale.
In all of the cases where they’re saying that the vendor would like to run to auction, you can make an offer and we’re seeing some really bullish offers.
Change days on market to hours on market.
The better the quality of property, the faster it will sell. If you believe you’re targeting quality property, you need to move even faster.
The great lifestyle re-evaluation
More desireability for more space – people moving to regional areas, holiday home get away, a larger property with separate study.
This function of looking for larger land size or dwelling size is going to continue – and this is consistent with what we’ve been banging on about in quality properties – a logical floor plan, land to asset ratio
This has also been playing out in high vacancy rates for apartments in the CBD
Lack of international students are also weighing down on the CBD apartment market.
Until our international students come back, that particular market will have problems.
Immigration
With all of our return travellers, it offset a lot of the falls in expected immigration.
38,000 Aussies on the waiting list
Quarantine people in regional areas – Ballarat and Bendigo
Farmers and agricultural are finding it really tough to get workers – watch this space.
There’s huge pressure to get the Aussies back and mounting pressure for international students and low paid workers.
The efficacy of the vaccines will play a role in this as well.
NZ macro prudential measures
December NZ house price index rose an eye-watering 17.3 per cent year on year
with prices up 18.1 per cent in Auckland
16.6 per cent outside Auckland
16.6 per cent outside Auckland
Makes it impossible for first home buyers to start off with an investment property unless they have help from parents
Central bank has slapped restrictions on the housing market
From March 1, banks will only be able to allocate 20 per cent of new lending to loans with an LVR of more than 80 per cent.
A) Over two stages, lenders will only be allowed to allocate at most 5 per cent of new lending to investment property borrowing, with an LVR of more than 70 per cent.
Then, on May 1, the LVR requirement will be cut to more than 60 per cent, still with a 5 per cent allocation.
We’re at almost an all-time low for investors in the market – when looking at history, looking back in 2014-2015, our macro prudential regulator decided to clip the wings of investors.
We did a lot of things to tell investors that we didn’t want to play ball with them, and they went away.
When we see responsible lending changes come through, that’s when we’ll see some excited investors return.
Macro prudential regulations could come in for us at the end of this year, but we may not be targeting investors.
JobKeeper and JobSeeker coming to a close at the end of next month
We think it will be miniscule impact to the property market
There aren’t too many people sitting back desparately trying to hold onto a property
Anyone on JobKeeper or JobSeeker is not out there buying a property right now.
For all the people who are confident, because they’ve decided that their jobs are secure, are out there shopping and pushing the prices up.
I think the strength of consumer confidence combined with low interest rates, any impact of people coming off JobKeeper and JobSeeker will be overshadowed by the ferocity of the market.
These are casual workers and non-main incomes when part of a couple. Most of these people are either not buying property or are not the main drivers of purchasing property.
Interest rates will remain low for 4 years
Governor Lowe has adjusted his expectations for the cash rate to stay at 0.1% from 3 years to 4 years.
A lot of consumer think that RBA focus monetary policy on cash rate is the ability to repay mortgages. It’s actually not about the property market, but about the economy.
Their focus is two fold:
Primary focus is on unemployment and
suppress the currency (makes our economy competitive)
We want inflation back in the target range, which is 3-4%
The RBA doesn’t think negative interest rates is a good approach for the long-term, so what they are doing is quantitative easing – via a bond buying program – focusing on 5 and 10 year bond yields.
We have variable rate home loans and short fixed rate, by buying these yields, it doesn’t impact our mortgage market that much.
Government has learned that after GFC, they didn’t provide enough stimulus.
Wages have been stagnant for a long period of time, so rates are going to stay low until such time as wages are growing at above 3% p/a
The housing market can be limited in other ways, without touching interest rates.
Off-market opportunities
Somone who is not genuine in selling unless they get a power-ball result
Someone who is genuine and ready to go – they have to sell and they have a sharper focus on the date of selling and settling. It DOES NOT MEAN they’ll take a bargain.
This can be lucrative for someone who is ready and flexible.
Anyone who can sell at auction, absolutely should.
How does this Jan/Feb compare with other periods?
This year, none of us can take holidays.
Agents are thinking, yes we’re flat out, but we’ve got to make up for lost time.
Agents are on board, buyers are on board, vendors are just not there.
We’ve had this horrible hiatus of listing activity, and that has caused a frenzy because of lack of stock.
Vaccine success in Israel
Vaccines are critical to the success of macro markets and the economy.
Israel is providing the greatest insight to success of vaccinations. They’ve vaccinated more than 50% of their population.
Most of the strain is the British strain
90-95% efficacy against British strain
41% drop in confirmed infections in the above 60 age group, 30% drop in hospitalizations
One week after receiving the second Pfizer dose – the point at which full protection is expected to kick in – 254 out of 416,900 people were infected, according to Maccabi, a leading Israeli healthcare provider. Comparing this against an unvaccinated group revealed a vaccine efficacy of 91 per cent, Maccabi said.
By 22 days after full vaccination, no infections were recorded.

David Johnston- The Property Planner’s Golden nugget: Governor Lowe says rates need to stay the same for at least 3 to 4 years, maybe longer. He wants to see wages growth occur, they are growing at 1.4% annually and we now need to push the jobless rate down to 4. something to grow the economy. The US was at 3.5% prior to covid, they’re now at 6.7%. Interestingly we were at 5.1% and we’re at 6.6%, similar to the US.

Cate Bakos – The Property Buyer’s Golden nugget: I want to chat to anyone who is feeling a sense of FOMO, no matter what conditions you are navigating, do not panic buy and skip your due diligence. The effect of doing that could be enormous regret. Be prepared for the phone to ring or for the auction to be brought forward or the deal to be done quickly, but don’t do anything knee-jerk as a result of FOMO.

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