Cashing in: Time to sell your home?

Do you feel lucky? Well… do you? If you’re thinking of selling an investment property, you’ll want to get the best result possible, and with a new buzz over the property market at the moment, the perfect time to sell could be right now.

Your neighbour might have whispered it, or a colleague at the water cooler could have brought it up. However you found out, you’re probably aware that the property market is getting a lot of attention. Everyone is starting to say the same thing – that now could be the perfect time to get into the market.

Of course, the more people say it, the more you’ll have to wonder if the opposite could be true. If everyone is entering the property market thinking it is the right time to buy, wouldn’t that make it a great time to sell?

It’s an interesting argument. If you’re from the ‘value school’ of investing, you’ll believe as Warren Buffett does, that investing is forever and that selling is a mistake. Yet it’s hard to argue with a lot of what is going on in the Australian property market. Interest rates are at an all-time low and confidence is up. If you own an investment property that has produced less than stellar results, could now be the perfect time to plan your exit strategy?

Current market conditions Buyer competition

Supply and demand numbers indicate that the last few months of the year should offer a reasonably strong outcome for vendors. Already the supply of properties in most capital cities is relatively low, and as more buyers enter the market over the traditional spring selling season that supply could see additional pressure.

Residex figures show that house and land values across Australia increased 0.59% over May, June and July, while unit values increased 1.89% over the same period. Although interest rates were already low at that point, the activity represented a period before the RBA’s landmark 25 basis point cut in August, which saw interest rates drop to their current level of 2.5%. This leaves Residex founder John Edwards attributing part of the recent growth in values to a lack of available housing stock for those looking to purchase.

“We will see a more active market with the rate of price growth being dependent on the volume of stock brought to the market,” Edwards says.

He adds that as the impact of the August cut filters into the buying market, most capital cities should see a fairly strong spring selling season.

Auction clearance rates Data from Australian Property Monitors and RP Data seems to line up with Edwards’ prediction, with both companies releasing preliminary figures that show Sydney auction clearance rates hitting a new record in August.

Auction clearance rates are normally a strong indicator of how active the buying market is within a major city, because a high rate means that very few properties are getting passed in at auction. In Sydney’s case, the monthly clearance rate hit 79%, breaking the previous record of 77% set in 2002.

Melbourne also saw strong auction activity across August. Auction clearance rates hovered over the 70% mark, a sharp contrast to the same time the year before when 61% of auctioned properties were sold. Critically, these rates included premium property sales, a section of the market that has been treading water since the GFC. As proof of this, Melbourne’s top auctioned property hammered in at $1.7m.

Across all capital cities, auction clearance rates were at 72% up from autumn selling season – and forecast to increase over September.

Unemployment

One potential downside to selling property at the moment is the fact that unemployment is forecast to rise. It’s not rocket science. If more people are unemployed buyer sentiment will be affected. When that happens the idea of taking up a large mortgage will become a lot less appealing for a significant portion of the buying public, taking away recently returned vigour to the property market and creating an environment where selling property is difficult.

The Treasury forecasts that the national unemployment rate will reach 6.25% by the end of the financial year, up from the 5.75% forecast in the budget. If the Treasury is right, this will mean that roughly 780,000 Australians will be out of work. This is up 73,000 on the current number of people that the ABS estimates to be unemployed: 707,000.

For Residex’s John Edwards, this makes it hard to foresee runaway capital growth in the property market, suggesting that although demand outweighs supply in many markets, there’s potential for the buying market to become cautious again. “A period of excessive price growth is unlikely,” Edwards says. “The economy is not strong enough to support such an outcome. Unemployment [will] encourage a level of conservatism within the community and at some point interest rates will rise from the current historical low point.”

Property cycles Property cycles should be a significant factor in weighing your decision to sell. Most property markets, whether they are individual suburbs, capital cities or regional markets, tend to move in a seven to 10 year cycle.

To discuss this article or anything to do with your finances, please call our office today and we will be happy to assist you.

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