Market Watch Archive

It is tough trying to read the Byron Bay real estate market. No national consistency exists, and each city, price bracket, and region tracks differently. It is always necessary to drill down into the specific areas and regions, but never more so than now. I will get to the Byron Bay and Northern Rivers market later, but first, let’s look at the national overview.

It’s The Economy, Stupid

Property prices are on the rise in most cities. Brisbane is now the second most expensive city after Sydney, and it has been experiencing consistent growth. Byron Bay usually follows the Sydney trend by six months, but there is no certainty we will follow it this time as there are some contraindications with the local market.

The economy is a hair’s breadth away from a recession, coupled with high interest rates and the continuing threat of inflation. The housing shortage and substantial migration numbers are sustaining the city’s median house price rise. Buyers also realise that the housing shortage is not a passing blip and will take many years, if not decades, to solve. Since the rental market is even more onerous than buying, common sense seems to be, if you can afford to buy, buy now!

A reasonable proportion of sellers and buyers are sitting on their hands, waiting to see what direction inflation and interest rates will go. There is no guarantee that the next move on interest rates will be down. Some are waiting for an indication that spring will be better for selling and that there is a chance there will be a flood of listings. The traditional spring selling bump has not been relevant for some years now. If you are a seller in this market, listing at the correct price to meet the market is essential.

Statistically Speaking

For 16 months in a row, the national market has experienced price growth. There was 0.8% growth in May, the highest since last October. Sydney now has only 1.4% of the previous peak it experienced during COVID-19. Domain and CoreLogic predict a 7-9% price growth in Sydney in 2024. Will this growth and demand translate to the Byron market?

Byron Bay real estate (postcode 2481) is still far from its COVID-19 peaks. If you look at the accompanying graph, the median price is down to $2.4 mil off the high median in 2022 of $3.5 mil – about 30%. Again, Byron is a bit of an outlier to other postcodes in the Northern Rivers, and it is only used as an example.

 

In the Doldrums

Will the Byron Bay property market return to its COVID peak in six months as Sydney has? My hunch is that it won’t. Even if the median price does get back to that peak, it will only be driven by top-end, high-value properties for the wealthy, as that market is still stronger than the rest. We do not have the migrant surge here that is keeping the floor in the market in the cities.

The median house price in the Northern Rivers will remain weak because, in Mullumbimby, South Golden Beach, Murwillumbah and Lismore, property price drops are baked in as the flood damage equals permanent price damage. Another reason is that Byron and the hinterland suffer from regular episodes of Byron Bashing. Occasionally, the rest of the country chooses to hate us because they think we are up ourselves and believe we are special. That will pass, and they will fall in love with us once again because we are special!!!

For two years from June 2020, Byron Shire experienced a ferocious bull run with a median house price jump of around 60%. After the floods of February 2022, the median price here took a hit of 33%. For most of 2023, it was the quietest market I have experienced in my 40 years of living here.

Since the Xmas break, things seem to be more active. Agents I have dealt with are describing it as “active” neither buoyant nor dead. Some open homes I have visited, especially in entry-level areas like Ocean Shores or Byron Hills, are very active. One with a listing price of around $1 mil had around 20 people at the open and had two offers above the listing price.

New Listings

Many potential vendors have been delaying listing until the buyer’s market has eased. I was interested to see if we would have a rush to market after the Australia Day weekend. But even though the market is a bit stronger, there seems to be no sign of a rush of new listings.

For Buyers

New buyers entering the market now will see they are on the tail end of retreating prices. There will be opportunities for buying under market value, especially with listings that have been online for a while. The top end, over $5 mil, which was so strong during COVID-19, is where most of the price reduction is occurring.

For Sellers

It has always been important to list with an accurate listing guide. Like Goldilocks – not too low, but not too high. Listen to your experienced agent’s advice and not to an agent wanting to “buy” the listing with an exaggerated estimate.  Sellers may choose to go for an EOI (Expression of Interest) or even to research the sale price with an off-market period before listing. This is sometimes wise if you have a distinctive property that is hard to price.

Both buyers and sellers are curious to know how this year will play out as far as the optimum time to buy or sell. Are we heading into a rising, flat, or falling market? Anyone looking to buy and hold for longer than five to ten years should ignore trend lines and property clocks. Buy what you like, what suits your needs, and is at fair market value. If you are at your budget ceiling, learn to manage compromises, or the market could move on you.

Don’t get stuck in analysis paralysis. As a buyer’s agent, this is my only regret at times, not encouraging clients more forcefully when I know something is right for them. For sellers wondering whether to wait for the market to rise sufficiently before going to market. I would not bother as I believe we are entering a stage without big changes in either direction.

The Media

The mainstream media loves to use property articles to generate clicks and keep real estate advertisers happy. They love to use headlines like Property is Booming or Property Is Bust. Here are just a few of the recent pronouncements and as you can see, there is no consensus.

Australian Financial  Review

This recent AFR article was headlined House Prices on the Coast Plunge $600K.  Most of you will be blocked by a paywall but it lists the ten coastal towns that have plunged the most. Byron Shire towns, plus Lennox Head, were 6 of the ten worst price decreases. The chart is copied and pasted here.

Somewhere in a similar article was something showing that old chestnut: the property clock. This shows where your region is on the property cycle, with a top value at the top of the clock and prices have bottomed at 6. It positioned Byron and Northern Rivers coast at 3 o’clock, with more falls to come. Assuming I did accept the notion of a property clock, I would position us at a 5 or 6.

Domain

Or you could take your cues from this Domain article. It headlines The NSW sea change towns where house prices fell most.  It shows that Lismore has collapsed the most at over 19% since Dec 22 and Dec 23, with Byron Bay losing 2.6% in the same period. Most of our falls happened in 2022. It also states that most regional markets have been stable for the last 6 months. The first time we have seen two quarters of flat property prices since 2010 – and that should be a good thing.

Domain Predictions

This Domain article goes so far as to make five predictions for the year.  It believes we will have reasonable property growth this year. Spurred on by ongoing immigration and more demand if/when there is an interest rate cut later in the year. It thinks that the government’s Help to Buy Scheme will also be a big help to first-time home buyers. I do not agree with that and hate these gov schemes that are all about window dressing, do not face the housing crisis, and only increase house prices by giving taxpayer funds to sellers. It also sees YIMBYs getting traction over NIMBYs in the housing crisis debate.

SMH – Sydney Booming

If you want a more positive spin, this SMH article states that Sydney suburban prices are already having a run. Some suburbs have seen price growth of 20%. We usually follow Sydney trends after 6 months or so, but this time I think our market will be more sedate. Sydney is in high demand because the lack of housing is being pressured by large numbers of migrants and students. We do not get that here.

Conclusion

We are in interesting times. As you can see, there are many differing opinions on what is going on. No one knows for sure, but my sense is the market will strengthen slightly but without much price growth. Good properties listed at fair value may encounter competitive bidding, which could deliver better than expected sales prices.

Buyers looking for bargains may be disappointed as the window of the buyer’s market will be closing. Owners who are flood-affected or who bought at the peak and need to sell may be forced to take a hit. Some deals are going to get sticky because of rising insurance policy costs. Sellers who are unsure should listen to good advice from an experienced listing agent or vendor advocate who will be able to navigate this market while it is still hard to read.

There has been a lot of speculation on whether the property market has hit bottom. For most of last year, the general market has been in decline with the consensus that there has been an 18-20% drop in the median house price from March 22 – March 23.

Some indicators signal that the market is on an upturn. February national median house price increased by 0.2% and March increased by 0.6%. There also has been a renewed interest coming from investors who are usually first out sniffing for bargains. But the market has not yet moved from FOO (Fear Of Overpaying) to making offers. This link to an article from The Domian is also worth a read.

The top-end, prestige market is still doing well. As you can see by looking at the Hot Property section of this newsletter. The recent record price of $26 mil has now been smashed to $37 mil. Other big sales in the luxury end have also occurred. (More in Hot Property)

Hesitation

There is still a lot of hesitation out there. It will take more than a slight rise to turn it from a buyer’s to a seller’s market. Whatever happens with the RBA announcement today, we are still some distance from a full return to market confidence. And it would seem that rate rises are not over yet.

Rate rises and inflation is not the only things affecting property sentiment. There is also what is known as the Fixed Rate Cliff. This is the possibility that many mortgage holders will be coming off their fixed interest rate loans from April on and faced with higher interest rates. This coupled with inflationary pressures on purchasing ability may force a contingent of homeowners into a forced or distressed sale. This could cause a domino effect of house listings which would flood the market and send prices south. This will also be doubly distressing to those with Negative Equity – where their house is worth less than their mortgage.

There are also the doomsayer prophets. This is a cohort of observers who believe another financial meltdown is in the wings. Their number swells and drops over time, depending on the economic headwinds. I do not believe they are right or wrong but their rising ranks are another cause of more people holding their chips off the table.

Overview

It is a novel feeling to drive around these days and see For Sale signs displayed in front of houses for many, long months. It must be dispiriting for the owners. It is a difficult decision on whether to cut losses and meet the market, or hang on until you find the price you believe in. I have no advice there.

The sentiment is that the RBA will do one more rate rise, probably today, and leave it to plateau for a while. No one expects a full back to normal until interest rates have held steady for a few months. If that is the case, the market in spring will be a lot stronger than it was last year.

I must do a Mea Culpa once more. The last Market Watch in November was predicting the market doldrums would be receding around now. Looks like the market will be remaining flat for quite a while longer.

 

In the July 2022 Market Watch, I posted graphs of previous downturns and how long it takes to rebound back. The average looks to be 24 months with the worst price fall and longest period of fall to rebound being 8.5% in 2017 – 2020. This current median price fall is already at 18% and we will probably be well past another 12 months before we gain that back.

 

Interest Rates

The RBA has been using rate rises as a blunt instrument to keep inflation under control. There are not many other levers and dials in monetary policy at their disposal. Either way, something is working as buyers all over the country are sitting on their hands, not raising them at auctions or working fingers over keyboards doing online property searches.

 

The RBA governor, Phillip Lowe, is in an unfortunate position and people seem to be taking it personally that he is the cause of rising rates and pinched budgets. The real estate market in this country moves as one and is dictated to by the mainstream media. They are either all gung-ho or doom and gloom. Never much nuance and the herd will move once the commentators say it’s all right again.

 

There remains a lot of uncertainty in the building and construction industry. Supply chain issues and rising material costs are major concerns for potential vacant land buyers. Builders and construction companies are feeling the squeeze and some are going under. For unexplained reasons, the construction industry does go quiet under a new Labor government.

 

It’s all in the Data

I posted this image on my FB feed recently and it created some interest. The data company I subscribe to still sees this area as a HOT market even though there are 21% fewer searches than this time last year. How HOT must our market have been at this time? There are also 50% more listings than this time last year, Ie a classic buyers’ market. 88% of all inquiries are from outside of the shire. Postcodes 2030, 3930, and 2008 are Vaucluse, Mount Eliza, and Chippendale, respectively.

According to property data firm CoreLogic, the Richmond-Tweed region is the worst-performing in the eastern states. House values have sunk 18.6% for the year to January, with sales volume down more than a third. Properties in the region also posted the longest time on the market, at 71 days, and the largest vendor discounts at 8.3%, in the three months to January. But this needs to be tempered by the 51% median house price increase during Covid. If we are close to the bottom now that means that the local median is still up 32.4% since 2020 which, put in context, is not too painful.

 

What’s Next?

People who do not need to sell into this market should stay on the sidelines and keep their powder dry. However, if you plan on selling and immediately buying in the same region, then there is not too much concern. Picking the right time, and the right listing price is crucial to getting a good outcome. Anyone who is planning on selling is welcome to contact me directly and I will explain my Vendor Advocacy service.

This graph is the growth chart for Byron Shire over the last 12 months. What is evident is the collapse of sales numbers. The uptick in prices is probably due to a combination of the time delay to go to settlement as well as a few recent top-end sales. Go to the Hot Property section to read about these new record-breaking sales. Top-end, as well as commercial units in the industrial estate properties, are still performing well.

Like any industry under pressure and tight times, we may see a reduction in the number of listing agents and buyer’s agents. Many got so use to putting up a sign and doing a deal the next day. They got spoilt by high prices and quick selling periods making them complacent – especially those who have not been through downturns.

Land Valuation

Ironically many property owners are now being slugged by unusually high land tax valuations. Yes, having to pay a lot of money to the Office of State Revenue is definitely a first-world problem. You only get a hefty increase in your assessment if your property values have increased. But this is an issue for many asset-rich/cash-poor property owners. Some may be forced to sell and cannot afford the bill. There is a time lag when you receive a Notice of Valuation from the Valuer General. In this situation now, people are getting their assessment at the bottom of a trough on valuations that happened at the tip of the high.

Swings and roundabouts! You can challenge your land tax assessment at this government site.

The roller coaster ride of the recent property market turbulence has not yet abated. Industry commentators are suggesting that we are past the bottom, and we can expect to be back to normal sometime early next year.

The downturn we needed to have has nearly exhausted itself and our local (Byron Shire) market will probably see a median house price reduction of no more than 5 – 15%. Some less in-demand areas, or floodplain properties, in the Northern Rivers, are liable for a bigger slide of closer to 20% or more. Byron Shire’s demand and housing shortfall should keep it buffered as there is no evidence of an abundance of forced or distressed sales.

As you can see in the accompanying chart of Byron Bay 2481, the price reductions have not yet registered on the trend line due to the time lag. It is good to see that chart and recognise that this downturn is still minor in comparison to the rapid growth the market witnessed over the previous two years.

Patchy

As usual, the median price decline has been patchy and not evenly spread to all property types and regions. Top-end rural with finished turnkey homes within 20 minutes from Byron are still finding buyers. However, the recent agitation caused by FOMO is no longer there and buyers can be more patient and discerning. Entry-level homes (under $1.2 mil) in good locations are also highly competitive as housing demand remains very high. The lack of available commercial and industrial space is also keeping prices buoyant in this category.

Prices are very soft in the mid-range suburban market: $1.5 – $2.5 mil range. Turnover in this bracket has dried up as most non-essential house buying has shrunk back to a minimum. Also showing very poor activity is anything that has been flood-damaged. The lack of appetite for homes that witnessed water inundation must be doubly disturbing to anyone wanting to sell after experiencing this traumatic event.

National Trends

Of course, there has been lots of media chatter about the Australian property market. Most commentary has been exaggerated or inaccurate because you cannot read local trends into nationwide data. Rising interest rates, international turbulence, energy prices, and other factors have been major detractors of consumer sentiment. The current pullback has been a natural reversal after such meteoric rises and anyone who expects property prices to head in only one direction is not cognisant of how markets work.

Price falls have occurred across the country – more in some places and less in others. Unfortunately, price falls have not improved housing affordability as rising interest rates have offset it. As national home prices have fallen, higher mortgage rates have canceled out increased affordability. Currently, it would take a typical Australian first home buyer 10.9 years to save for a deposit (assuming 30% of income is saved). This is barely lower than the 11.3 years required in the prior quarter, according to the ANZ CoreLogic Housing Affordability Report found.

Reasons to be cheerful

1. Interest rates settle: Most commenters think we are now close to the end of this spate of anti-inflationary interest rate rises. Again, like the recent price decline being minimal when taken in context, current interest rates are still below average over the long term. The current cash rate of 2.85% translates into an average home loan rate of between 5-6% while for a long time a 7% rate or higher was very normal. Either way, when interest rates settle it would seem likely that much of the delayed property movement will resurface.
2. Immigration numbers return: As Covid 19 continues to fade, students, skilled workers, and the refugee intake resume demand for property will increase.  According to the PropTrack report, there is a surge in people from overseas looking for homes. The report states, “Approximately three-quarters of buy and rent searches come from the United Kingdom, the United States, and New Zealand.”
3. Flight to the regions not over: A new report from buyers’ agency Hotspotting indicates people will continue to move out of cities to regional areas. While the pandemic certainly exaggerated this existing trend, it had been building for five to six years already. Technology and work-from-home preferences enable people to work and have access to a better lifestyle. This is a long-term trend and it is not over yet.
4. Stamp Duty changes: The new NSW Stamp Duty legislation ‘First Home Buyers Choice‘ may also help the market. The property reform was recently passed in the NSW parliament enabling first-home buyers in NSW the option to choose between paying an upfront lump sum stamp duty or an annual land tax, which will improve buyers borrowing capacities.

Conclusion

One of our prime ministers once said. ‘This is the recession we had to have.’ One could equally say now ‘this is the property downturn we had to have.’  Affordability and housing shortage are still major issues. People who purchased recently under the assumption provided by the RBA that interest rates will stay low for years have a reason to be annoyed. But although it can be stressful in the short term, try to hang on as something that looks like too much now may look like good buying in a few years’ time.

More Graphs:

This chart showing the list of coastal towns’ property values was of interest. Byron Bay is number one followed by Kiama, south of Sydney.

This chart is also very telling, showing what house price segmentation is in the last 12 months. As you can see, homes over $3 mil are dwarfing any other segment. But this is Byron Bay 2481, where most properties are over $2 mil. Mullumbimby’s main segment is $1.25 – $1.5 mil. Bangalow is $1.5-$2 mil.

Over my many years of watching the property market, it is amusing the observe the media reaction to a downturn. Doom, gloom and catastrophe make good headlines but often seem to be a ploy to sell papers or get more internet clicks. Exaggerating the booms and busts is standard behaviour for the mainstream media.

It is natural that we have a correction after such a strong growth period. Undoubtedly, there are many negative headwinds affecting the current market: rising interest rates, attention on the election, flooding and weather events, inflation pressures, and negative consumer sentiment. All these factors are at play and causing buyer interest and demand to severely wane.

Online inquiry rates are down close to 40% on May 22 compared with June 21. Even with this serious drop in buyer demand, properties are still selling as life and death go on. We will always have the four D’s – Death, Downsizing, Debt and Divorce – so real estate listings and sales will keep happening, just at a less buoyant rate.

Buyer’s Market

The mood has changed from FOMO – Fear of Missing, Out to FOOP – Fear of Over Paying.  The switch from a seller’s market to one that benefits buyers is just that – it is now a good time to buy. Currently, I am not seeing any significant downturn in prices locally, but motivated vendors are certainly aware they will need to be realistic and competitive to sell in this market.

According to Corelogic, Regional Australia experienced a 0.5% price lift in May, but this was not enough to keep the national market in positive territory. Larger price falls were experienced in all the major cities except Brisbane and Adelaide. But in June, even these two cities experienced small drops. May was the first month since September 20 that the national housing price index went negative.

If you do not need to sell your existing home to buy, then this would be a good time to start the search and make offers. This is one of the few times in this highly desirous locale when vendors may be forced to settle for less than market value. As we are at the winter solstice, this saying is appropriate: ‘Buy sun hats in winter!’ If you are selling and buying in the same market, and intend to hold long term, then it does not really matter where on the trend line you do it. This article from Domain gives a second opinion on the ‘whether to buy now or later’ dilemma.

Picking the Bottom

To those that are thinking that the market still has further to fall and will wait for the bottom, good luck to you. If you have the foresight to know how to pick the market, then you obviously have access to higher powers and you don’t need to read this. My hunch, without any access to science or data, is that our market, not necessarily the national one, will have a small median house retreat (5%) and then show signs of strengthening again as early as later this year.

If wanting to pick the bottom is something that interests you, we only have historical data to go on. Below are two graphs that give the number of months from peak to trough and from peak to recovery. The number of months from top to trough is between 1 – 8.4. The number of months from peak to full recovery for all the property downturns going back to 1990, is 9 to 39 months.

Again, these graphs are for the national market and mainly deal with suburban tract homes and units. Byron Shire and other parts of the Northern Rivers will be dealing with a micro-market and not as affected by the negative headwinds listed above. Recent buyers here were not heavily mortgaged as most were cash transactions and therefore not panicked by rising interest rates. Our severe housing shortage will sustain demand for owner-occupiers and renters, and assuming this area remains a desirable place to visit and live, the downturn will be short-lived.

Other Problems

The main problem for incoming buyers here has usually been the highly competitive market. As a buyer’s agent over the last few years, I have been earning my fee mainly by getting my clients ahead of the other buyers. The current issue for incoming buyers is the need to be aware that we are also suffering from supply and labour shortages. It is very difficult to get trades or service providers. Building materials and some products are difficult to source and very expensive. Builders and renovators are averse to taking on fixed-cost quotes. Best to stay away from new builds or renovations in this present climate.

If you are thinking of listing, the main requirement is getting an accurate estimate. It would be difficult to value most rural and unique properties in this changeable market. Getting good advice will be crucial and could make the difference between a successful outcome and falling way short. If you do not already have a good relationship with an experienced agent, I would be happy to talk to you about my vendor’s advocacy service.

Short Term Holiday Letting limit

For those that have not been paying attention, BSC looks like they will successfully be able to introduce their long-sought-after 90-day STHL limit. This will allow a 365-day holiday letting in certain zones (Wategos, Belongil, Suffolk Beach, etc), but only a 90-day limit in all other areas. I have heard some chatter that this may cause a sell-off of HL properties and affect the market. I am not aware of any evidence of this and don’t think it will make a lot of difference to property prices. Unfortunately, I also predict that it will make very little difference as a housing crisis solution – but happy to be proved wrong with that. More opinion on that here from a previous blog.

Byron Bay 2481

To provide some perspective on the recent housing trend line below is the CoreLogic chart for Byron Bay 2481. This is not indicative of the whole Byron Shire or wider Northern Rivers. It is also inflated because there have been quite a few top-end luxury properties for sale over the COVID period sold to pandemic refugees.

Conclusion

This commentary may seem overly upbeat. Yes, there are huge issues and concerns and I am certainly aware of the many factors that could bring on a general global asset crash. After clocking up more than a few decades of life experience I look back and think “When were we NOT on the edge of some major catastrophe?”. We always manage to muddle through – but there may come a time when we don’t.

Enjoy life in the meantime.

For most, 2021 has been a dreadful year, but in the real estate market, it has been extraordinary. Lifestyle destinations like Byron Bay and most regional coastal towns have seen an unprecedented house price increase. There are winners and losers of course and the rental market is dire and accommodation is either non-existent, poor quality and always a long way from affordable.

Upward Trend Line

The market was already moving up in the regions prior to Covid 19. Work from home and families looking for better work/life balance was already a trend. Then the pandemic arrived and put a rocket under it. There was a short downturn in April/May 2020 when people realised Covid 19 was a major global disruptor. The main activity for many was to be online looking for escape routes to the country. Melbourne for example had a net negative migration of more than 10,000 in 2020.

Nationally, median house prices increased more than 25% for the calendar year. The median house price in Sydney, Melbourne and Canberra is now over $1 mil. Byron shire house prices have left this national average in the dust. We now have the highest median house prices in the country and therefore one of the most expensive real estate markets in the world.

Local Increases

Local median house price data varies slightly with different platforms. APM Pricefinder shows the following price increases in our region from the two years from 2019 to 2021:

Byron Bay (2481) :                $1.56mm – $2.84m     <54%

Brunswick Heads (2483) :  $1.15m – $1.84m          <62%

Bangalow (2479) :               $982,000 – $1.63m     <60%

Mullumbimby (2472) :         $711,000 –  $1,29m      <55%

The Byron Shire has the most expensive median house price of any regional area. It is $1,838,286, up 30.2% in 2021. It is above Sydney’s median house price of $1,389,948 and  Melbourne’s at $1,002,464. However, the biggest price increase for the year goes to Kiama, 90km south of Sydney. It was up 43.9 per cent, taking its median value to $1,633,086.

More Stock

One change is there is more stock online now than there was last year. Listing agents are always complaining they don’t have enough stock. Some sellers were probably trying to pick the peak of the trend line before listing and most may have waited too long. Especially with rural acreages in which there are more listings than usual.

Whether this will eventually wash out into lower prices is yet to be seen. My guess is no, as the depth of potential buyers, although less than last year, still appears to be strong. The villages of Bangalow, Brunswick Heads are Mullumbimby are again, as the year moves out of holiday and lockdowns, showing signs of heating up again after cooling a bit between November to January. Multiple bidders and competitive offers are normal on anything that is good and priced to meet the market.

Negative Headwinds

As usual, commentators are talking of bubbles and corrections. NAB released a report predicting a 10% price downturn next year. Westpac also had media with similar estimates. The expected rise in interest rates is seen to be a dampener on the market. This may be true for entry-level and the investor market. Struggle street is certainly sensitive to mortgage stress and cost of living concerns. For good or bad, the Byron region is now the home to lifestyle owner-occupiers who are less affected by interest rate rises. The majority of local deals of late seem to be cash buyers and not debt-dependent. In reality, offers subject to finance in this market are not prioritised by listing agents.

Cynical observers may look at the surge of media about interest rate rises and the advice for customers to fix rates as an income-generating ploy by the big four banks. The time to fix rates would be well before the actual rise occurs. Fixing your rates should only ever be for security and peace of mind. Very rarely does a rate fix ever save anyone money. The banks want to scare punters into fixing rates as it is good for their bottom line.

Airbnb effect?

It will be interesting to see if the incoming policy on Airbnb is going to be a negative headwind on Byron Bay prices. Since January 31^st all properties listed for holiday letting will need to follow the 180-day rental limit imposed on the NSW government. All the Holiday Let platforms seem to be determined to enforce these policies and are delisting properties that are not registering.

Anecdotal evidence seems to be there is no panic and owners are prepared to limit themselves to 180 days of occupancy. HL practitioners assume that Byron Shire will not be successful in gaining the 90-day limit, which a few councillors (including Mayor Michael Lyon), are advocating. The 180-day limit will be successful in being a deterrent for new commercial operators trying to enter the market and going for maximum yield. This is a good thing but a 90-day limit will permanently damage the economy and employment of the region and do very little to deliver more affordable house rentals as hoped. The reasoning for this is here in this previous article.

The Manhattan Effect

In closing, I thought to include demographer and Commentator Bernard Salt’s commentary here:

“Frustrated Australian travel budgets are being redirected to lifestyle property in the form of a Byron bolthole or similar. Move permanently to “the weekender” or simply buy something more permanent far from the madding (and infected) crowd. This certainly seems to have been the Melbourne narrative early in the pandemic.

If this has been a consequence of the pandemic, then labour-dependent businesses within the weekender orbit of capital cities would start to suffer from the so-called Manhattan Effect, where essential workers can longer afford to live in the locale in which they deliver their essential labour.

Cleaners, cooks, gardeners, sanitation workers, waiters, labourers and others doing what needs to be done to make a city work are flung out, as if propelled by a centrifugal force, to the outermost reaches, not of New Jersey, but of the Northern Rivers, to the Noosa and Gold Coast hinterland, to the edges of Geelong, Wollongong and Newcastle. And indeed, from such places, essential workers must now commute to deliver their services.”

The last year and a bit have been the most intense and unusual I have ever experienced. When the first signs of the seriousness of COVID kicked in in March/April 2020, there was a serious contraction and expectations of a downturn, even depression. This expected slump was not to be and instead we have had the largest and longest boom cycle most of us in the industry have ever experienced.

BOOM NOT SLUMP

It certainly did look like gloom and doom at the beginning of the pandemic. Being a tourism centred economy, many small businesses were under serious stress and concern. Many SMEs were under pressure trying to keep the doors open. Ironically, some were able to be nimble and adaptable and found revenue growth. Some people enjoyed the experience of slowing down and smelling the roses. Especially during those first couple of months as we had perfect weather, no traffic and good surf.

With real estate, I know of people who sold at this time expecting further losses. This proved to be the wrong move. Who could have then imagined we would move into one of the most sustained and exuberant periods of capital gain growth and intense demand?

We now Beat Sydney

Byron Shire now has the expensive property in the country – by a country mile.  Only a few suburbs in the eastern suburbs and northern beaches of Sydney have higher property prices than Byron Shire. Byron Bay 2481 now has a median house price of $2.7 million while the Sydney average sits close to $1.4 mil. Internationally, Vancouver is the only other location that has higher property prices. Hong Kong was also a contender of this dubious honour until the recent Chinese political upheavals.

But there is a caveat for locals who are doing the math on this with their own home. This median is being skewed because of a large number of high end, luxury properties being sold in 2020/21. It is a mistake to expect every suburban home in the shire to experience a similar capital gain. There certainly is an increase, but not double.

The attached graph shows you the median house price chart for Byron Bay. The local property market was already on a strong upswing during 2018/19. It then hit a slump in 2020 with COVID but then took off in an almost classic hockey stick chart. The median house price nearly doubled from around $1.4 mil to $2.7 mil. This is for Byron Bay 2481. Bangalow has had a median house price growth of 24% for the year, Mullumbimby 26.9%, Brunswick Heads 24.9% and Ocean Shores 17.3%.

Winners and Losers

With every major transition in a market like this, there are winners and losers. The situation with the rental market and affordable housing is dire. Rental vacancies were down to 0.03% when an average is supposed to be 3%. That means that for every 100 homes, 3 at any one time would be available for rent. That is how it should be but not the case now.

This is not just causing homelessness and social housing issues. Many long term residents are being forced out of the shire. Business owners, especially restaurants, are having problems keeping staff as there is no housing for workers and many are forced to commute long distances. Some business owners have resorted to trying to buy houses to secure accommodation for staff. Key workers like nurses, teachers and police are having difficulty finding housing. It has not been uncommon to hear about employed people or single parents being forced to sleep in their cars or vans.

Future Predictions

It is commonly accepted that this level of the price increase and demand is not sustainable. However, no one is commenting that we are in the midst of a bubble or imminent crash. Economists are predicting further price lifts before the end of the year.

A crash will only happen when there is an excess in the product due to overdevelopment, or excess in rental stock. There could be a turndown if the present record low-interest rates start the rise quickly but the RBA has signalled these rates will remain low till 2014 at least.

We are no longer seeing the intense demand for finished, top-end luxury homes (over $5 mil). It is still strong but we are not seeing the kind of uplift that has skewed the median house price data so strongly. We are still seeing massive demand for entry-level and suburban homes because of the scramble for people to secure a place to live. I have been to many auctions of homes under $2 mil and all have gone way over the advertised price range. I expect this to continue – at least for the remainder of the year.

Drill Down in the Data

• Westpac’s quarterly Housing Pulse report says this is officially a boom.
• most of the 90-odd sub-markets being tracked had recorded gains running at a double-digit annualised growth pace.
• Not one recorded a decline. “This is very rare in the history of Australian property cycles which more usually see a few markets ‘sit it out when prices are on the move”, the report said.
• HIA New Home Sales report shows that sales of new homes in NSW increased by 15.2 per cent in May 2021 compared to the previous month. This is 2.9 per cent higher than the same time in 2020.
• Sales are 36.9% higher than April and May last year.
• There is expected to be a record number of new home starts in 2021
• The attached article below is from Realestate.com.au with more info on the local market

I usually do a market watch article every six months or so. However, sometimes the market is unusual that it needs more commentary. This is one of those times. Many readers may wish for this article to tell you what’s going on, and what’s going to happen next? I can only answer “I don’t know” to both questions.

I do know that for me and for all the selling agents I have talked to, we have never seen anything like this. In the past I have witnessed more than a couple of extremely strong market surges – 2002/03 and 2016/17 come to mind. But this current market is double that and on steroids.

Stories from the Front Line

Just before the Xmas break, I was booked to bid at three auctions. They were all cancelled due to each property being sold prior to the auction. The couple of auctions I did attend, I was left holding a paddle limp while watching the bidding fly past the estimated range. I have been on the way to inspections, with clients in the car, only to be called by the listing agent saying the vendors have changed their price now put an extra 50%. I went on a journey with a client where we were bidding on a rural acre in a good location. The expected range was advertised as $1.3- 1.5 mil. We pulled out when the bidding went past $1.9 mil.

It is hard to say how long this market will hold up like this. Some commentators are saying we are at the peak and it is true that a lot of buyers are hesitant now with lots of media on this story.

Background

Byron Bay has taken the crown for the highest house price growth of any suburb in the country last year, with house prices rising by an astonishing 37 per cent. The median house price is now $1.68 million.

The rapid growth has prompted a spillover effect in neighbouring towns, with the median house price in the Byron Shire overall rising 26 per cent in 2020. The median house price in the town of Bangalow rose 24 per cent to a $1.175 million median while Mullumbimby rose 16.6 per cent to $830,000.

Construction Led Recovery

We are at the effect of major economic and demographic shifts. The post-COVID flight from the cities and the ability to work from home are having an impact. Plus, there is a financial ecosystem with government packages and incentives turbocharging the construction industry and property.

A recent internal RBA document, released under FOI pressure, estimated that property will have 30% growth in the next three years. But this is no secret, in the government’s own words: “This is a construction led post-COVID recovery”. The various first homeowner grants and renovation incentives have been over-subscribed and the federal government is expected to spend around $2 billion in this space.

Entry Level

At the lower end of the local market, we are seeing a frenzied level of demand for anything lower below $1.5 mil.  Anything below the median is now in the crosshairs of anyone who can pull their resources together to get a piece of the local market before it gets out of reach.

This FOMO is being exacerbated by the numerous distressing stories of rental demand. As was reported in the SMH earlier in the month, Byron’s vacancy rate now sits at a worrying 0.03% as opposed to the still low 3.1% in December 2019. The rental shortfall was exacerbated by the influx of film and TV people here at the end of last year and expect more of that to come.

Top End

We are having out of this world prices paid for top-end properties. This is something many of us are now concerned about. Byron Shire is now on the radar of an investor class that is happy to park money in luxury real estate. This could replace the wealthy lifestyle market we have been seeing for the last few years. Lifestyle buyers can easily be absorbed and assimilated and help maintain “the vibe”. This new class of buyer are only passing through and will leave it empty most of the year.

A good example of this activity is evident in the proposed listing of a house in Bay Street Byron. This property, on the market for $60 mil,  is also mentioned in Hot Property. The developer, Adam Hammond, has said the property “was likely to attract more international interest, given its scale and price tag. The sort of person who can spend just over $60 million Australian on a house, which realistically will be a holiday house, will likely have a net worth of at least half a billion dollars.”

Not Impressed

As you can imagine, the news that we are now going be intermittently visited by some of the 1% who come once a year to check on their money, is not something most people will be rejoicing over. For many long-term locals who have invested time and energy making this place but not had the desire or ability to buy something previous to the price rises are feeling the pressure.

Many would assume this would be a great time to be a buyers agent here with all this going on. It is not a matter of making hay while the sun shines. It is hard to get a deal done and it is not easy advising my clients to be rash and pay well over market value. Like many other agents I know, we are not just in this for the money – normality and just doing a good job for our clients would be the preferable option.

And for the data-driven, the Stats:

• CoreLogic data shows that dwelling values in capital cities rose 2 per cent during 2020. However regional markets rose a remarkable 7%. The last time this happened was in 2004.
• The number of loans for the construction of a new home saw record-breaking levels in November 2020, as the figure, tracked by the ABS, record its sixth consecutive rise.
• New home loan commitments in November jumped a further 7.2 per cent higher than the record-breaking levels in October 2020 to now be 99 per cent higher over the year.
• Stimulus measures and low-interest rates through 2020 resulted in building approvals reaching an eleven-year high in November, according to the Australian Bureau of Statistics (ABS).
• House approvals rose for the fifth consecutive month in November, seasonally adjusted, reaching the highest recorded level since December 1999.
• Approvals for renovation work also peaked, reaching an all-time high in November.
• According to ME Bank Andrew Bartello, topping the property trends in 2021 is the desire for ‘urban village’ living, related to the significant increase of professionals working from home. “With the daily commute no longer a deciding factor in the home buying process, regional areas within a commutable distance to CBDs are being added to homebuyers’ wish lists.
• If you can access Apple News, this article from the AGE is interesting.

In September we viewed this chart showing the price surge that Byron Bay 2481 had between 2014 to 2017. Shire-wide was just as intense, with a 72% increase in just 5 years from an average price of $530,000 in 2014 to $910,000 in 2018.

 

Since 2017 there has been a downturn in 2481, but as suspected, prices have surged in the latter half of this year. some notable record breakers are in Wategos Beach as mentioned in the video.

Part of what is driving this surge is an influx of wealthy buyers who are willing to pay far over the normal market value, even for luxury properties. Unfortunately, this also carries through for properties under $1.5 million making them a very rare find.

Last Market Watch it was noted that rental supply and housing stress issues will flare and we have certainly seen this in the community to an extreme extent. An influx of wealthy out-of-towners has pushed out local potential buyers, as well as causing the market to become fraught and move at lightning speed. Michael shares a few tips in the video that may help when navigating rapids of buying in the shire.

The Byron market is still in hyperdrive. Especially small rural acreages close to the coast. The new post-COVID work-from-home ethos and the flight from the cities looks to be more than just a passing trend. We have had other surges like this, but this one is probably the most extreme. Bangalow was the location with the second-highest search request in realestate.com.au last month.

No New Listings

We are at the start of a classic supply and demand squeeze. Byron Shire averages around 450 listings at any one time, currently, we are only seeing listings around 250. We have high demand from new buyers but very few locals are wanting to go anywhere.  I do not see this trend changing in the near future – at least till well after COVID-19 pandemic is behind us.

Price Rises Expected

The first price rise surge I experienced like this was in the early 2000s. The recent period of strong growth was between 2014 and then peaked in late 2017 before pulling back a bit. The median house price almost doubled then from $900k to $1,600,000 in postcode 2481. Shire-wide was just as intense, with a 72% increase in just 5 years from an average price of $530,000 in 2014 to $910,000 in 2018. There was also a post-GFC bump around 2010/11 but this has nothing compared to these other two.

The attached chart shows the unprecedented price surge that Byron Bay 2481 had between 2014 to 2017. Since then there has been a downturn but price increases should be expected for the last half of this year due to the increase in demand and the decrease in new stock.

Dark Clouds

Some media is still predicting a collapse in property prices still to come. The federal government stimulus package is to be ceased or wound back in September. This may have an impact on built-up medium density areas in the cities but will be minimal here.

There are definitely some forced sales happening and I have seen a couple already.  We will not be immune from forced downsizing, finance, and liquidity issues. But generally, the Byron area is mainly inhabited by owner-occupiers who are holding very little debt. I recently heard a loan manager from one of the major banks complaining of not experiencing any higher demand as very few new buyers are in need of a mortgage.

Immigration Numbers

Continuous growth in immigration has been one reason why Australia has grown and maintained one of the highest real estate prices in the world.  The large influx of immigration since the early 2000s has not been met with an equal increase in housing supply. This article linked below goes into detail on this topic and is well worth reading for anyone with an interest in this subject.

Local Concerns

As always, Byron will continue experiencing increasing issues with rental supply and housing stress. If this current market upturn is anything like the last one, Byron median house price will go stratospheric. Byron Council’s tinkering on the edges with Airbnb restrictions and the Granny Flat Moratorium will not put a dent in the side of our current undersupply of dwellings.

Housing Diversity

Most of us wish to keep a diverse, multi-textured community that also incorporates artists, musicians, surfers, and navel-gazers.  This is part of what makes living here so fabulous! It will be an issue for our community if the property and rental prices rise too high then we become a monoculture. The other problem we have is a lack of housing diversity. Please read the next article – ALTERNATIVE HOUSING MODELS – to get more information on what housing diversity looks like.