We believe you should NOT wait for the real estate market to change before moving to your next property.
The flat market conditions could be the perfect time to upsize in Sydney’s eastern suburbs.
A look at how the pandemic drove people to upsize
CoreLogic reports that Sydney’s median dwelling value rose by over 30% between mid-2020 and the end of 2021 due to a prolonged property boom.
In addition to low-interest rates, the COVID-19 pandemic encouraged many people to think about what they wanted in their homes. With people spending more time at home during lockdowns, space has become more important.
Due to this, many people have been looking to upsize, taking the next step on their property journey by moving to a new home. This has dramatically impacted property prices, with demand way outpacing supply.
People are holding off because of rising interest rates
A series of RBA increases took the official cash rate from 0.1% to 3.35% (which is much closer to the post-1990 average of 3.84%). This had a dramatic effect, especially on people looking for a larger, more expensive home.
Since many people upsize their homes, they need to finance any difference between their existing home and the new one. Because that means taking out a larger mortgage, rate increases have affected them more than others.
For instance, if you were to take out a 30-year $2 million principal and interest home loan when interest rates were 2%, your monthly repayments would be around $7400 a month; at 6%, those monthly repayments would go to almost $12,000 a month.
There’s a big difference to anyone’s bottom line – and that’s why we’re seeing less market activity today.
An opportunity arising from perceived adversity
In these economic times, it’s natural for people to be cautious. If you’re thinking of upsizing and are worried about rising interest rates, consider that these are actually the best times to do so.
As a result of the hot market of 2021, buyers were scared of missing out, so they offered above the odds to get a house, or settled for second best. There is less competition in today’s market, making it easier to decide. Additionally, you have a better chance of finding the right place for your next move.
In addition, a flat market tends to yield lower prices because the gap between property values is smaller.
Consider the case of your current home being worth $4 million and the new one is worth $6 million – a $2 million difference. If the price of both falls by 10%, your home becomes worth $3.6 million, while the one you want to move into becomes worth $5.4 million – a $1.8 million gap.
Therefore, you’ll have a smaller gap to finance, allowing you to move up the property ladder for less – potentially offsetting the rate rise.
Aside from that, Sydney property prices generally rise over the long term. ABS data shows that the average annual price increase over the past 46 years has been 7.9%.
Which is better, top-down or bottom-up?
The flatter market may change, and we may see more activity when we get more certainty about interest rates, which we may see soon. However, we also believe two other factors could push the market.
While the residential market in Sydney’s eastern suburbs has remained remarkably strong throughout 2021, the family home market has become more subdued over the past 12 months.
It appears that this strength will continue throughout 2023.
This would result in a downward demand spiral, affecting family home prices.
Alternatives – and perhaps even more likely – are that prices will begin to rise from the bottom up. During 2021, the apartment market never reached the same heights as the housing market. Recent price drops and a strong retinal market have made buying an apartment more attractive than renting.
Waiting is not the best course of action…
A lot of evidence suggests that the market will turn quickly when it does. After the last slump, Sydney property prices spiked 5.7% in December 2019. After dropping 7.9% over a period of 18 months, they shot up 5.7% over 18 months. quarter alone. And Domain’s data shows that upswings tend to last 33 months, and prices rise by 32.7% – or close to one per cent a month.
In short, those who sit around waiting and hoping for the market to turn often get in too late.
Do you want more information?
I am here to assist you if you’re looking to buy or sell a property in the Eastern Suburbs.