Where are the auctions? Is it a coincidence we are facing a federal election while the expected level of auction listings for November have failed to materialise?
Many property investment proponents have a long memory when it comes to federal politics. In spite of a record 16 years of uninterrupted economic expansion, the spectre of high inflation, high interest rates and recessionary outcomes that occurred between 1988 and 1993 remains a palpable fear. The prospect of a new Labor Prime Minister and frontbench that has yet to serve its economic apprenticeship is sure to have some impact on investment sentiment.
The full effects of this week’s $34 billion tax cuts “handout” have yet been quantified. In any event, the election is already making its presence felt in the key investor zones in our major cities, that is the inner urban areas two to 12 kilometres from the major CBDs.
This sector continues on its upward price trajectory, with demand consistently outstripping supply. Even a higher level of October stock coming on the market has failed to dampen the ardour of buyers. And normally, this momentum would roll through until about mid-December. But, when we examine sales listings for November, very little stock has in fact been listed for sale.
Now it is worth noting that there is at least a two to three-week advance time frame for property listings. So what’s happening?
The economy has been growing since before the coalition took office in 1996, while inflation and interest rates have remained low. In 1997, the property market started to come up again on the back of more stable and confidence-boosting indicators. Over the subsequent three elections – 1998, 2001 and 2004 – the only mooted impact on the housing market was to have been the introduction of the GST in 2000, which did not have the across-the-board fallout that many predicted.
This tells us that even major tax reform tends to be absorbed back into consumer sentiment relatively quickly. However, this was achieved on the back of solid economic performance and an economic strategy that was already familiar, proven and somewhat predictable.
Given that property transactions are not as spontaneous as other asset classes and that these transactions require relatively long lead times, those purchasers and vendors who are currently very active in the market would have made a committed decision in August or September to enter the market in October. I would expect a second wave of November vendors and purchasers to have made their commitments in early October. But taking the November listings as an indicator, it’s clear we’re looking at a hesitant market.
The trend is most pronounced in Victoria, where the relatively high number of auctions offer one of the market’s more reliable indicators of national sentiment.
The combination of further interest rate rises and the uncertainty associated with potentially radical changes in political and economic philosophy may well be causing investors to sit tight. This could be further exacerbated by the widely touted threat of a further interest rate rise when inflation figures are released in 10 days’ time and the Reserve Bank meets on November 7. It’s what you might call “election interruptus!”
In the meantime, prospective purchasers who wait until November may well find that the only month of full supply on offer in the spring 2007 market has been October. And, the lack of November stock could have a profound effect on the market when it reopens in February 2008.
Low supply means that clearance rates are likely to remain above 70%, heralding a strong and early opening to the 2008 market. By then, the Federal Government – Liberal or Labor – will be in residence. In the meantime, if the clearance rate does remain around 70% or higher for the rest of 2007, in spite of low stock levels next month, then pent-up buyer demand should remain strong and we could see a red hot opening for the most in-demand sectors of the market in February 2008.