As Sydney and Melbourne undergo a shift in property prices and supply vs demand, the typical selling time for homes has lengthened. Here are a few reasons why buyers are taking more time to make a decision.
Banks have tightened lending
The banking Royal Commission put pressure on lenders to tighten their policies. It’s no longer as easy for people buying a new home to get a loan. Banks are scrutinising personal expenses like never before and this is delaying loan approvals, which has slowed both the buying and selling process significantly.
In July 2019, lending criteria was loosened and more people have been able to access finance again. This has brought some new buying competition back into the marketplace in both cities, however this is more prevalent in inner city locations.
Investors have exited the market
During the boom, investors were snapping up everything from tiny terraces to five bedroom mansions. Then, APRA asked the banks to slow down on investor lending; and later asked them to reduce interest-only loans, which are favoured by investors.
This sent investors into hiding and a big chunk of buying competition was removed from the market. This allowed owner occupiers to take more time in choosing a property.
These limitations have now been lifted, however investors are continuing to pay higher interest rates than owner occupiers.
“On the bright side, the exodus of investors has given first home buyers a better chance of getting a foot in the door,” said homes.com.au Founder & Managing Director, Pat Carbone.
What gets said in media reports has a direct impact on property market sentiment. Scary headlines about price bubbles and predictions of a 40% drop in Australian house prices made everyone nervous.
Buying and selling activity usually reduces when the media goes negative on property. People hold back and wait.
“It’s called the ‘herd mentality’,” said Pat Carbone, Chairman and Founder. “People gain confidence from seeing others buying or selling in the marketplace.”
Supply and demand
Sydney and Melbourne experienced huge buying demand during the boom of 2012-2017. Supply could not keep pace and prices went up as a result. FOMO, or fear of missing out, propelled buyers to pay higher and higher prices.
Both markets slowed from mid-late 2017 and throughout 2018, with demand slipping away and prices softening. This led to an increased average ‘days on market’ for people selling homes.
In 2019, both markets began to turn. By mid year, lending policies had been loosened and interest rates had been cut significantly by the Reserve Bank. This brought new buying activity back into the marketplace, primarily in inner city locations.
Supply remains very low, so this new demand is pushing prices north again in many areas.