Any economist will tell you there really is only one reason property prices rise: demand outstrips supply.
Right now we’re seeing demand reach levels that we’ve rarely seen before, at the same time as supply is relatively low.
This is creating a huge amount of energy in the property market, with buyers worried they’ll never find the right home. That, in turn, means the property market is taking on a life of its own.
Why demand is running high
One of the main factors driving the market right now is low-interest rates.
The link between interest rates and demand for property is well documented. And interest rates have never been lower than they are at the moment. Many lenders are offering fixed-rate home loans for less than 2% and banks have loosened their lending criteria, allowing more people to borrow. This situation seems incredible for any of us who have endured 18% interest rates.
But access to cheap finance only tells a part of the story. After all, in the premium market – especially the premium downsizers market – most buyers don’t take out a large home loan. The reality is that they often pay cash. Yet prices in this market segment are growing quickest of all. We’ve already achieved many record premium sales this year, such as 1806/81 MacLeay Street, Potts Point.
We’re also seeing incredible demand for unrenovated premium properties such as 90 Victoria Street, Potts Point and those with the scope to build a dream luxury home, such as 29 Wellington Street, Bondi.
And the pandemic has certainly had an impact too. One thing we’ve noticed is that many people are prepared to spend a lot more on their homes than they once were. They’re often working from home, spending more time at home and obviously spending a little less on things like overseas holidays and entertainment.
Thankfully, despite the pandemic, Australia’s economic growth is high and unemployment is low, even with our current border closures. In fact, consumer confidence is at an 11-year high.
The factor that’s really driving the market
But while all of these factors are helping push prices up, we’re noticing a much bigger force at play in today’s market.
Lower than usual stock levels and a growing number of buyers competing for those properties is creating a genuine fear of missing out or FOMO. Many buyers have been out-bid at multiple auctions or have had properties sold before they can get their own offer in and this is creating a belief among some that they won’t find their next home at all.
This is especially true where someone is buying and selling and has already listed their own home.
When FOMO takes hold like it is at the moment, it can be a difficult force to control. And it’s a big part of the reason we’re seeing records constantly broken. It’s common for properties to sell for well over reserve, even hundreds of thousands over reserve.
But it wasn’t too long ago vendors were withdrawing properties from the market, worried they wouldn’t sell at all.
What you can do to beat FOMO
If you’re buying and selling in a market like this, our advice is often to buy first and sell second. That way you’ll know you have somewhere to move to. If you do want to – or need to – sell, you should look to include a longer settlement period in your contract for sale to give yourself some breathing space so that you have time to find your next home.
More than anything, you should be decisive and not lose heart. While the Sydney market may be competitive, there are still many good properties out there. When you find one that matches what you’re looking for, it pays to act assertively.
If you’d like to know more about the current market, get in touch today.