By Munro Donen, Principal Buyers' Agent & Director, Propertybuyer East
Sydney’s Eastern Suburbs appeal to a wide cross section of buyers. While it’s true we have diverse property options, those wanting a quality home still need a sizeable chunk of funds at their disposal. The Eastern Suburbs market could be the most resilient market in Australia with a strong history of capital growth.
If you have been considering a purchase, but have been delaying buying, I’d suggest you don’t wait any longer. In 12-months’ time you may look back and realise that right now would have been the ideal moment to secure your home. The big driver of future price growth will be rate cuts. A recent report by realestate.com.au on Ray White Economics’ analysis showed Sydney dwelling prices – which currently have a median of $1.05 million – would rise by an average of $15,300 in the first month after a rate cut. More importantly, in the past property prices have risen by around eight per cent in the two years following a rate cut.
In certain blue-chip markets and for particular property types – such as high-quality family homes in the Eastern Suburbs – the increase as a result of rate cuts could potentially be even greater.
The point is that the market is steady at present with some excellent buying opportunities on hand. However, once buyer sentiment becomes more prevalent towards a rate cut, I expect property prices to increase quickly. Once we see a second rate cut, and we see auction clearance rates above 70 per cent, prices should rise even higher based on past evidence.
AMP chief economist Dr Shane Oliver said recently in Domain, “Once you start to see the cuts buyers will start to get more enthusiastic about expectations for more cuts ahead, which will ultimately push the property market up -- not necessarily after the first one.”
Reserve Bank interest rate decisions are reported extensively as they have a direct effect on household budgets and how much new property buyers can borrow.
What’s interesting is that people have become extremely reactive to rate movements. I’ve seen how rising interest rates will have a sudden, negative effect on buyer demand in property markets. I’ve also seen the reverse happen.
As mortgage broker Chris Foster Ramsay said in a recent Domain article, “The smart ones are trying to buy before the rate cut because of the potential impact around the market forces.”… and I couldn’t agree more.
This is why I believe buyers have a golden opportunity right now to profit from pending rate cuts – but that window of opportunity will close soon.
Right now, borrowers are feeling the pinch from rate rises. For example, repayments on a 30-year loan of $800,000 would have risen from approximately $3000 per month to $5000 per month between now and the low point of interest rates.
Since November 2023, however, the RBA has kept rates on hold. In fact, inflation has remained stubbornly high, so the RBA has pushed back expected rate cuts, and this delay has delivered an exceptional window of opportunity to property buyers.
You see, buyer confidence has been hit hard by rate rises. Many people who are yet to buy a home have watched and waited, because they’ve seen loan repayments increasing.
Another negative has been the serviceability buffer of between two and three per cent applied by lenders when assessing new loan applications. This buffer is further limiting the amount people can borrow.
For these reasons, a lot of potential buyers have decided they’ll wait until interest rates fall before they purchase a property, which may not be the best decision. As Warren Buffet said, “Be fearful when others are greedy, and be greedy when others are fearful."
So, right now we are in a moment in time when rates are close to their peak, while people are sitting on the sidelines. Meanwhile, sellers are finding it increasingly difficult in some markets to stir up competition for their listed homes (something I’ll be discussing in my next blog, so stay tuned).
But have no doubt – an interest rate cut is coming.
While the exact date is unknown, there’s talk among economists of it being between December 2024 and February 2025. In fact, polling of 34 economists by finder.com.au shows 15 of them believe February 2025 to be the most likely time.
Many major economies around the world have already cut their cash rates. The United States recently dropped their rate by 0.5 per cent. The European Union, United Kingdom, Canada, New Zealand and others have also cut rates from their peaks.
These cuts also bring a new pool of buyers in the high-end market – cashed up Australian expats. When rates are cut overseas in, say, the United states, then their US dollars buy more Aussie dollars, thus increasing their purchasing power.
Our advice is to get ahead of the pack and don’t wait for everyone else because fortune favours the brave.
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