Unfortunately, my crystal ball broke when I threw it against the wall. I got a bit cranky when I realised I could no longer go to my favourite café for my large single-shot, coconut milk flat white. Therefore I can no longer give you 100% accurate mystical readings of where the market is and where it is heading.
We are in completely uncharted territory. No one really knows much of anything anymore. It is all guesswork and who knows when the dust will settle. Therefore these ruminations are purely speculative and need to be taken as a companion piece to this other article as well. Eliza Owen, Head Researcher from CoreLogic, has gone over all the crashes and catastrophes of the last 50 years and dissected how they have effected the Australian property market.
Price Drops Expected
A number of forecasters are predicting a property price slump of around 20%. This could be true nationally, but as we know the national market is a patchwork of local markets. Each market has its own idiosyncrasies and we will concentrate here on Byron Bay and the Northern Rivers.
Prior to the economy going off a cliff this month, our market was looking to extend its recent upward trajectory. Many agents, myself included, were seeing a buoyancy and renewed buyer demand since late last year. The median house price for postcode 2481 Byron Bay was still down from its 2017 highs of $1,650,000 to the current $1,316,000. But it was expected that strong gains this year would see it get back to its 2017 highs. But that will not be possible now. If we see another drop of 20%, the new median price will be $1,052,800, which is roughly what it was in 2015.
The Byron market – postcodes 2479 to 2483 – was just starting to bank the price increases experienced by the southern cities. In the December 2019 quarter, Sydney and Melbourne prices rose 4.7 percent and 5.2 percent respectively, and nationally 3.9%.
It is possible that the Byron and hinterland market will not experience a pullback of the full 20%, or more. If we use the post-GFC declines from 2008 as a reference, the Byron area was not as badly affected as many regions. Good properties in good locations like Byron Bay, Suffolk Park, Bangalow and Brunswick Heads only had a fall of around 5% after the few months of serious constriction. Yes, there was massive discounting on some rural acreages where speculative buyers had overcapitalised with leveraged debt. I remember some forced sales were taking losses of 25-35%. At the same time, locations like Noosa and top-end Gold Coast were off around 40%.
Will we see a similar trend at this time? Yes, it’s probable, but this situation is different in many ways. (Damn that cracked Crystal Ball!). For one thing, I do not think we have had as many speculative buyers using debt to do renovations to flip as we had prior to the GFC. My experience of many buyers over the last few years has been owner-occupiers with cash. Also, it may be that the banks are not going to be so heartless this time around. Looks like there will be enforced leniency, with the big four banks required to limit foreclosures and offer a mortgage moratorium. If nothing else, the Banking Royal Commission has at least put the banks on notice to consider other stakeholders (like customers – Duh!) instead of just shareholders and C-suite executive bonuses.
Regardless, there will certainly be more sellers leaving the market than buyers entering and that will always exert downward pressure. The number of properties offered for sale and the desperation of those heading for the exit will determine the price falls. The last few days have seen more than the usual new listings in my morning alerts. Agents are also confirming to me that there are more new sellers wanting out. However there are still buyers looking for a home. The investor market here is fairly negligible so we will not see a rout as we will see in the western suburbs of all the eastern capitals. But expect reasonable price falls once distressed vendors realise their expected price point is not attainable. Those vendors not needing to sell will withdraw their properties for sale and simply wait it out.
Is Byron Special?
The Byron market is insulated against extreme shocks not only because it offers quality assets with high demand. This region has an intuitive and visceral attraction in times of stress and shock. It is rural and not overpopulated. It has a well-educated, community-orientated population with a (slightly) more attuned sense of civic responsibility. It has functioning food production and distribution networks through farmers markets and direct sales from growers. And the more mobile sections of the community may decide that city living is even less tenable than before. A move to the country may be just what the doctor ordered.