Property buyers are holding back at auction due to worries that their new asset will be worth less money in the future as the housing market falls.
Buyer confusion about how much money to fork out and the unpredictable outlook for interest rate hikes have also resulted in a number of homes passing in and selling after.
Just this weekend, the preliminary auction clearance rate in Sydney was 66.8%, its highest since late March, albeit on lower volumes, while Melbourne’s was 61.1% as many listings were sold following post-auction negotiations, The Sydney Morning Herald reported.
Both cities saw house prices fall sharply as interest rates surged.
Damien Cooley, Cooley Auctions managing director, said would-be buyers are anxious about how much to pay – and what not to pay.
“They’re nervous about, if they buy this property for $2 million, is it going to be worth $1.8 million in six months’ time?” Cooley said. “That doesn’t mean they don’t like the property – they think, ‘We’re going to sit on the fence for a bit and wait for the bottom’.”
Cooley said we wouldn’t know when falling prices have reached their trough, and “it’s very difficult to know when the market has bottomed.”
He said the trough might approach once interest rates stabilise, buyer confidence improves, and inflation eases, but warned that there could be a price rally once buyers think the market has hit its low point.
“Almost every property I’ve bought, I’ve also felt I’ve paid too much,” Cooley said.
Jesse Davidson, AuctionWorks chief auctioneer, agreed some buyers are worried their new asset will decline in value.
“That’s one of the concerns, and typically, buyers are always trying to pick the bottom and pick the top,” Davidson said. “The truth is no one knows … it’s too hard, it’s too difficult to tell.”
He said some interested would-be buyers could not commit under strict auction conditions and tried to negotiate later. These conditions include extended settlements or to pay low 5% deposits, instead of 10%, if they do not have the full amount in cash.
Although the clearance rate has rebounded from its lows, Davidson said there are low volumes of auctions scheduled for this time of year, which may offer a false sense of the state of the market, SMH reported.
John Bongiorno, Marshall White director, said buyers in Melbourne are in no hurry to purchase because they are mindful the price of their property will fall.
“It is one of the catchcries you hear in the marketplace – buyers aren’t in a hurry to buy unless they find the right property at the right price,” Bongiorno said. “Real estate should always be viewed from a long-term point of view anyway.”
He said buyers are very sensitive about prices and are frustrated that there are not more for-sale properties to choose from, and many auctions that pass in are selling within about 10 days.
“What we’re seeing more of now is vendors starting to adjust – vendors coming around and saying, ‘I realise that it’s not the price that I probably would have gotten last year,’ but they’re accepting of the adjustment to the market,” Bongiorno said.
Jarrod McCabe, buyers’ advocate and Wakelin Property Advisory director, said buyers know about the falling market and increasing mortgage costs, but are trimming budgets rather than quit their search.
“The concerns that buyers have, and that they’re factoring in, are interest rate movements,” McCabe said. “I’m having clients that are adjusting what they’re prepared to pay for property so they’re comfortable with any increase in repayments. People are mindful of values reducing but they’re more conscious of what they’ll spend, than not proceeding.”
He said there were signs of bargain hunting, such as the four bidders at a property quoted at $1.25 million to $1.35 million he attended this weekend which opened at $1.2 million and passed in at the bottom of the quote range.
“To go to an auction and only bid below the quote price, you’re highly unlikely to buy property,” he said.
Part of the lacklustre auction results is due to the late stage in the year, McCabe said, as many buyers have already bought this spring.
There is strong competition for high-quality properties, he said, advising buyers to look at the most recent comparable sales results to know how much to pay.
“You’ve still got to be prepared to pay fair value, but you don’t need to be paying premiums,” McCabe told SMH.
