Spring in the property market may be a leap too farAugust 30, 2014
Michael Bleby, Mark Mulligan, Alana Schetzer

Natalie and Tim Young are selling their house. Natalie won't say how much she is hoping to get for the three-bedroom dwelling they renovated in the outer Melbourne suburb of Park Orchids. But the couple, who make a habit of buying, renovating and selling houses, know how to time things.
They put the house on the market this week and within 24 hours had already received three inquiries.
"It's a good time to sell: the weather is picking up and it means people can move in before Christmas," Natalie says.
As spring arrives and daffodil buds unfurl in gardens across the country, vendors like the Youngs are counting on another seasonal variety to unleash itself - the buyer under pressure. A fertile mix of more houses on the market and buyers who know they have a limited time to buy and settle before Christmas always gives birth to a strong spring market.
The question this year is whether the spring flurry of activity will push the country's property markets - particularly in Sydney, already seen as frothy - into dangerous territory, with some already calling the market as overpriced.
Concerns about an out-of-control housing market could lead the Reserve Bank to apply the brakes. At the more extreme end, some commentators warn of bubble-type scenarios that end with a housing market collapse.
Such is the level of competition in Sydney that so-called wounded underbidders - people who have missed out at auction and become more aggressive - are already resorting to pre-emptive bids in an effort to secure a dwelling.
Last weekend a Federation cottage in Leichhardt in Sydney's inner west sold the day before auction for $1.59 million - as much as $150,000 above the vendor's expectations - to a buyer who was determined not to miss out in another bruising public battle.
Sydneysider Pat White knows exactly what it's like to face repeated knock-backs. Her family of four needed to buy earlier this year after their landlord sold the apartment they were renting.
"The first we found was in [salubrious] Turramurra, a small house," she says. "We went to auction, and just lost out. It was devastating."
A week later they bid on a house in equaly salubrious Wahroonga.
"You don't have time to sit back and think again, you just have to go for it."
They didn't get it, however.
"On that one we also lost out. That was so draining. You think 'How am I going to buy the house?'"
When they then found a family house in St Ives (near Turramurra) - not where they'd originally aimed for but which met their needs - the Whites threw all they could at it, especially when they heard the vendor was prepared to accept an offer before the scheduled auction.
"We thought, 'We're going to put all-out'," she says. "We put down the full amount, rather than go to auction."
They weren't the only ones - another interested buyer also made an offer - but the Whites made the higher offer. They got the house. But there were compromises.
"We found this house in St Ives and it's still a lovely, beautiful area. But it's a little bit further from the schools. We had to make compromises - that's what you have to do in this market."
That competition is reflected in the prices. Sydney home values were up almost 15 per cent in July from their level a year ago, with the median dwelling price at $650,000, RP Data figures show. The research company will release its latest figures, for August, on Monday.
"While the change in price is an important market indicator, the number of transactions is also very important," says RP Data's Robert Larocca. "It's the throughput."
So the market is active and competitive. While auctions still account for only about one-fifth of all house sales, with the rest being by private treaty, rising clearance rates - the proportion of houses sold at auction, as reported by estate agents - give some backup to the anecdotal evidence of a market running hot.
Clearances in Sydney in the year to date are 74.6 per cent, up from just over 70 per cent in the same period last year and well up on the 53.2 per cent of the equivalent period in 2012.
Melbourne is holding at 67.7 per cent - little changed on last year's 68.6 per cent.
It all provides plenty of grist for the argument mill at the pointy end of the market. On Monday - the day the Youngs put their house on the market - Standard Life's chief economist Jeremy Lawson said factors such as Australia's record low cash rate - cut to 2.5 per cent a year ago - had driven demand to the extent that Australia's housing market was 20 to 30 per cent overvalued.
The country was highly vulnerable to any international or domestic shock, Lawson warned.
"Overall financial conditions have probably been too loose and that has undermined longer-run financial stability," he said.
For every action there is an equal reaction and in Australia's excited housing market, the spruikers talking up property to excitable investors at one end of the park are almost matched perfectly by the prophets of doom shouting at the other end.
Australia is living with a "Disneyland" delusion that there is no bubble, says Lindsay David, author of Australia: Boom to Bust. David argues ratios of loan sizes to incomes in this country - such as nine times in Sydney compared with 6.2 times in New York and 7.3 in London - are greater than anywhere else.
That's at the extreme end of analysis. A more sober view comes from Reserve Bank governor Glenn Stevens. He is wary of house price inflation, but says credit growth of 6 per cent a year is modest and that household debt levels are sustainable.
Others are more expansive in their comments. Deutsche Bank's chief economist for Australia Adam Boyton says a simple comparison of measures such as price-to-income ratios is flawed, as countries have their own dynamics as well.
"One thing that I think is flawed when we compare housing markets is that we do a price-to-income ratio and we compare it across every different economy and we simply draw conclusions and we say 'Oh, it's higher than what it was when the US bubble burst'," Boyton says.
"Yet we don't look at the quality of the underlying credit decisions, we don't look at Australian law that requires a lender to take into account whether the borrower can service that requirement. All of that stuff is put to one side; we just do a price-to-income ratio to conclude something."
"The perceived expensiveness of our property market is, as much as anything, a social issue," said ANZ's chief economist Warren Hogan.
"We simply don't have the speculative credit element there to describe it as a bubble. Low-income earners getting heavily leveraged was the problem in the United States, we don't have that issue here."
Still, the market is picking up. Just under 600 auctions are scheduled in Sydney this weekend and more than 700 in Melbourne, according to Fairfax-owned Australian Property Monitors (APM).
Numbers will continue to build over spring and summer, culminating in multiple "super Saturday" weekends - with more than 1000 auctions each in Sydney and Melbourne - between late October and the week before Christmas.
And in this rising market there are risks. The Reserve Bank this week warned against easing the rules that would make it easier for smaller lenders to pump more credit into the housing market. In doing so, the central bank called for less competition - to the great joy of the big four banks, no doubt - at the expense of stability.
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