May 20, 2024 by Dymphna

Why Sub-$800K is the hottest show in town

Things are getting hot down there.

A few weeks ago I noted that we were in a compression market. With prices rising, across the board, that was pushing more buyers into the more affordable segments of the market, which in turn was lifting prices in those segments.

There was a bit more evidence this week that things are heating up in the $700,000 to $800,000 price bracket.

The first was a recent sale on the Central Coast NSW. The real estate agent noted that it was part of a development specifically tailored to investors, but more and more, he’s seeing first home buyers snap them up.

First home buyers are considering these properties, whereas typically, I would have expected an investor looking for yield to buy this type of property.

Hudson Homes are an investor builder. They market in seminars across metros and they sell products like this. I’ve represented properties like this before and had a very long time on market working with a few investors.

There seems to be a shift of these smaller blocks to first home buyers. First home buyers are now seeing this as a huge fit for them.

Over the last few months I’ve [also] seen a shift in the marketplace. There’s confidence you can buy a property now. This is largely thanks to the RBA leaving rates on hold and saying it’s a wait and see. We’ve seen the buyer community really pick up and get a bit more aggressive.

Just a reminder there that many orgs selling “investment advice” are really just the front end of a development marketing machine. They offer great advice if the only advice you want to hear is “buy a property from us.”

I never have, and never will, sell properties to my students. It’s a massive conflict of interest.

But that point aside, the point the agent makes about first home buyers going after investor properties is interesting.

Again, I think it’s just a feature of a compression market.

Tim Lawless research director at Corelogic also expects strong competition in the sub-$800K segment this year:

“It’s quite the turnaround from what we’re seeing in early 2023 when there were a larger number of investors looking to sell than buy, largely due to the sharp falls in home values at the start of the interest rate cycle,” Mr Lawless said.

“I think the entrenched house price growth which is typically the main motivator for investors, and also the fact that the rental markets are so tight and are expected to remain tight probably enticed a lot of investors to get in.”

“We’re already seeing competitive pressure to the lower end of the marketplace where investors and first time buyers tend to be more active, which could be behind the recent stronger gains in that segment,” he said.

“Beyond just investors and first-time buyers, even subsequent buyers potentially becoming more limited in their ability to obtain credit would turn to the middle to lower end of the market.”

Everyone wants to buy because the outlook for prices over the next 18-months is pretty clear. But with interest rates remaining relatively elevated, it’s just a question of what people can afford.

And for the majority of the bell curve, that’s something under $800K.

But with all that extra competition, under $800K won’t remain under $800K for long.