April 9, 2024 by Dymphna

Competition for cheap suburbs set to get worse?

We’ve been waiting for this for years. Has it finally arrived?

Last week I noted that we’re in a unique phase of the market and it’s driving price gains in more affordable suburbs:

There’s an interesting thing happening in the market right now. We’re in a compression phase.

Often at the turn of a cycle, as the market starts to lift, it’s the top end of town that moves first. Premium suburbs lift, leading the way for mid-tier and entry-level properties.

But right now, we’re seeing a big lift in the cheaper suburbs, with many entry levels suburbs growing by 20% or more.

Now there’s another pressure building in the affordable sector, apparently. Downsizers.

Downsizers are selling up their expensive properties, and looking to buy back in somewhere cheaper:

The affordable end of the housing market, already streaking ahead, is about to get even more competitive for buyers as more downsizers seeking to reduce their mortgage join the fray, property experts say.

Thomas McGlynn, chief executive of Sydney-based real estate agency BresicWhitney, said the trend – which started about six months ago – has gathered pace and was likely to continue until interest rates were cut.

“We’re seeing more vendors, probably one out of 10, are downsizing to reduce their debt due to uncertainty over the rate cut,” he said.

“I think the cost-of-living crisis and the lag effect of interest rate rises have pushed more people over the edge.

“There’s a lot of pressure that’s bubbling away at the moment.

“People who bought at the peak of the market are now more motivated to rapidly reduce their financial commitments, while those who have built large equity in their homes but are struggling with cash flow, are also selling to relieve financial pressure.”

They then trot out a soon-to-be-retiree who downsized out of a house into a unit.

Look, I think this is definitely a trend. Some people will prefer somewhere smaller as they age.

But we’ve been talking about the downsizing phenomenon for years and it’s never really materialised.

Turns out, people prefer the suburbs they’ve been living in for 20 years to having one less bedroom to clean.

And I also wonder how much financial pressure can be driving this.

When you look at how many distressed listings are out there in the market right now, it’s pretty trivial, according to Domain. It’s well down on 2019 levels.

I mean, I know things are tight for a lot of people, but are they tight enough to justify selling up and buying something smaller?

Maybe it helps at the margin, but I can’t imagine it’s a major driver.

So I don’t know. Might just be real estate agent spin.

But, at the end of the day, it doesn’t really matter. The data speaks for itself. Things are hot in the affordable end of the market.

And it’s going to stay that way.