Navigating The Current Housing Market
For the first time since the GFC back in 2008, the dreaded “credit crunch” expression is now again making an appearance in our financial press commentary – only this time around its not referring to the cataclysmic fall in risk appetite across global markets experienced a decade ago but rather to the local housing market currently beset by a combination of tightening lending standards and higher costs of funding.
Across the property value chain from land development to construction to completed dwelling purchase, developers, builders and local but particularly overseas end buyers are having a tougher time getting finance – and if they do, it’s now more expensive and more restrictive.
The 2018 spring sales season – historically the peak period for housing market transfers – has been markedly different from that of the past few years… auction clearance rates below 50% (widely interpreted as signalling a buyer’s market), falling prices, increasing settlement risk and developers unwinding their land banks at discount.
No doubt ‘bad news’ abounds, particularly with respect to the two biggest housing markets of Sydney and Melbourne – and, inefficient markets like housing are particularly susceptible to ‘news’ and to expressions like “credit crunch” (even though its current use with respect to the housing market seems an exaggeration).
Why? Because there’s information asymmetry between buyers and sellers, who then must rely on intermediaries (buying/selling agents) and ‘expert’ third parties to get their information on outlook, prices, timing etc and then try to relate this to the particular dwelling they’re trying to buy or sell.
No small task given the sheer volume of ‘expert’ information out there about the housing market, leave aside that most of those who seek to influence our decision to buy or sell a particular dwelling have a vested interest (anyone earning a commission on your purchase or sale is conflicted).
That’s why most of us feel safer ‘running with the herd’ – buying and selling when we think ‘others’ would also buy and sell in similar circumstances.
Nothing wrong with that except that our individual circumstances are unlikely to be identical.
Sometimes, it may make sense given our particular life circumstances of need, affordability and holding period to buy when ‘others’ aren’t – we may be able to take advantage of a stronger bargaining power that comes from being part of a smaller buyer pool.