Buying and selling real estate today you need to know what is affecting property prices. Buyers and sellers need to remember that all housing markets are LOCAL. The media provides a macro report on real estate but cannot capture all the nuances that drive local prices.
Staggeringly high prices that consumers experienced 12 months ago are now correcting. However, some areas are clearly showing percentage differences and others are not. The property types – house, unit, townhouse – also are affected differently. So, what is happening in your local market?
Sellers need to know that the price reflects:
- Constrained supply if everyone is selling in your area and there are a lot of choices your property will be affected. Conversely, if there are fewer listings in your suburb chances are the mortgages are manageable or non-existent. You need to focus on what is most desired and frame your sale around that. The fewer comparable properties the less likely prices will fall. This is an indicator of future success for the area – generally, these suburbs tolerate serious economic stress historically better overall.
- Presentation in some areas sells the property. Offering a property that doesn’t need maintenance the instant someone moves in is a very big selling feature. In the current high inflation environment, high prices mean there is very little left over for buyers to spend doing up properties. Check to see whether listings in your area are all beautifully presented – if they are and yours isn’t it will affect the sale. Indeed, if your area is presenting badly this can be your point of difference – especially if the buyer has less to spend buying yours. It may hurt to spend a little upfront but a quicker sale for a higher price is always better.
- Comparing like for like, before you list to determine price is critical – you need to know the market better than the agent. Where does your property rank? Be honest. What do people want most in the slowing market? Location, accommodation, transport, schools, etc are your variables and if you know what is most desired currently you emphasize that. The more desirable criteria you have that is rare the better the price you will achieve. Not everyone lives in your suburb nor does everyone want to, so for those who want to, what do they need and desire now? The difference between what you offer and what is needed/desired affects the price. Always ask agents this and compare answers – they talk to buyers in your local area every day.
- The agent has a direct impact on your success. In the current market is their marketing as powerful? Has the agent adjusted to meet the slowing pace? The agent’s marketing – who they are trying to attract – has an impact. This does not necessarily mean size. Large brands can be dowdy and unprofessional and simply rely on their size. Equally some boutique brands can exclude or intimidate potential purchasers. You need to think about what people think of the brand – polished, trendy, matter of fact, conservative, cutting edge, etc, then match that to your property as they are the buyers you want.
- Time on the market seriously affects the price. Selling/buying is either a low or high-involvement transaction. For example, buying a packet of chips is low involvement and takes seconds to decide and if you buy the wrong flavour the risk is low because the chips were cheap. Property is clearly high involvement but it also has a time frame that is commensurate with the complexity. Generally speaking, four weeks is a property sale sweet spot – hence why auction campaigns are four weeks and slightly less in hot markets. You need to price to sell within a time frame. This is particularly important in the current slow market because lingering hurts the price. If several sellers are ‘holding on for the price it was last year’ buyers know they have the upper hand.
- Cost of money clearly affects the price of the property you can buy. When borrowing money is cheap houses are generally more expensive when borrowing money is expensive house prices slow down as people struggle to get finance. In this market, you are faced with fewer buyers and this can make a property look like it is not worth it – when in fact there are just fewer buyers. If you are selling in an area that mainly attracts second or third-time property buyers, they are generally more financial. These seasoned buyers often are not borrowing as much and that helps you sell but you must adjust your price attitude to the current slow market so you don’t linger.
- Units vs houses the property type affects price too. Obviously, there are fewer houses so demand is higher. Houses as a single entity is easier to critique and there is more control over maintenance when you sell. Units also turn over more frequently as units are often a stepping stone to a house. Selling in this market you need to consider the economic impact on your location, accommodation, fees and block size (house and units) because the buyers have more power in the transaction. Now that properties are not in furious demand during this slow market you need to thoroughly create a point of difference creating a mini supply offering that no one else has.
Buyers need to know that the price reflects:
- Constrained supply for buyers indicates that the likelihood of plummeting prices in ‘middle class’ or affluent areas is highly unlikely. The current market is quite unique because people saved as a consequence of being ‘locked up’ during covid. Many potential sellers now faced with higher inflation and potentially lower sale prices are waiting for a more favourable market. However, the slower market means that you have less competition and more opportunities to negotiate better deals. Clearly, if you buy in mortgage stressed areas there will be more on offer but the local market conditions may be an indicator of future sales.
- Presentation in the current market has a very different importance to buyers. Covid, the Ukraine-Russian War and natural disasters are having a massive impact on inflation. The cost of all goods and services is affected. Buying a property that needs renovation is very different now because the costs associated are in some instances is prohibitive. It could be argued that buying a property that is painted, has an updated kitchen and bathroom and is in good repair has built-in equity. Those costs now are much higher and will take longer to complete so you should definitely factor those costs in today’s markets.
- Comparing property when buying is generally within a council range. After covid, however, buyers started migrating out of their chosen suburbs, to regional locations and even out of the state. Chasing value for money and lifestyle is one legacy of covid and buyers are much more open to moving. If you decide to move away it is important to consider renting first as visiting and living can be very different. In areas you are familiar with you historically know the schools, the eateries, shops, transport, recreation centres and perhaps the locals. These elements contribute to the selling price of properties more than the actual property. You intrinsically know these elements because you have lived there so get to know your new local market before you buy.
- The agent’s role in a property purchase is not exactly the same as for a seller. As a buyer, you are seeing whether you would use them if you were to sell. You probably won’t like hearing this but the agent that is doggedly working for the seller is the best agent. In the current slow market, it is harder for agents because buyers are not awash cash. It is in this market that excellent agents emerge because it is much, much harder. You need an agent to be efficient, transparent and have superior local market knowledge because one day you may need those skills.
- Time on the market is a top criterion for buyers. Buying a house – as outlined – is a high-involvement transaction. You cannot afford to make a mistake – not like buying a bag of chips. In the current slow market houses that don’t sell are overpriced and the price either drops to meet the market or the property is withdrawn. However, all markets are local so where one suburb drops a neighbouring suburb may not. If the sellers are not motivated by their mortgage and love their suburb, they won’t sell resulting in low stock even creating demand. So, even in a slow market, these areas are less likely to drop.
- Cost of money can limit buyers. Clearly, banks are increasing interest rates and it will affect your ability to borrow. Some sellers are also struggling with interest rate hikes and this can impact the decision to sell. So, prices are dropping in areas where a significant population of sellers is under mortgage stress. However, there actually needs to be many sellers in this position for the prices to drop. In affluent areas that are less likely. If there is a drop in very desirable areas it is more likely a correction. Previous price increases were ridiculous and driven by cheap money that more people could borrow. Take out that number of borrowers and you get a correction, not a plummet.
- Units vs houses is a question many buyers grapple with. If you are a first home buyer you are thinking about whether you could live near a city in a unit or move further out in a house. Maybe you want luxury over renovations or you are thinking of downsizing. Whichever you choose you can see that if your area has a lot of supply the price will be affected. For unit buyers another criterion is emerging that affects the price – a builder. Many high-rise blocks that are recent builds are now selling and the history of the block will be scrutinised. Poor construction and maintenance are a cost going forward and as costs of goods and services are increasing the last thing you need is to lose future equity. In the current market repairs and supply are central concerns – too many of either is a no, no.
Not all markets are equal. Not all properties are equal either. So, when considering selling or buying think outside the property about what the local market is experiencing in the broader economy. The time you spend examining the local market will be your best investment.