February 18. Interest rates, equity markets, hmmm …

The auction opening weekend for 2008 can only be described as a bit of a dud. Next to nothing on offer at the top end and even off-market private sales have trickled to a halt. The top end won’t really be tested until it’s put under the pump next weekend. Even then, there is still a lack of choice: many vendors are holding back until after the Easter break as the long weekend and Grand Prix limit marketing opportunities over the next couple of weeks.

In the mid levels (under $2 million), while not as strong as last year, good properties are selling; but no longer at the runaway numbers that were common last year. Properties that failed to attract a bid – and there were quite a few – usually had issues or problems.

Of the six properties we bought over the weekend, five were passed in and results were obtained only after sometimes marathon negotiations. In many cases vendors’ expectations were way ahead of the market; and below $1,000,000 the market can only be described as extremely cautious. At these levels, many agents have reported a lack of enquiry over the past few weeks; which again highlights the knee-jerk reaction that buyers have when the words “interest rates” appear. That said, top-end enquiry is still solid with good properties having up to 40 people attending open-for-inspections.

It’s the chronic lack of quality properties at the top end that is still the major beef among purchasers.

Historically, when we see equity markets stumble, real estate tends to ride the wave for a year or two. However, if you look at Saturday’s auction results, we are yet to see any evidence to that effect. What we did notice at the coalface was a lack of investors in the marketplace. What will tend to happen over the next few weeks is units, more than houses, will be put under the microscope with respect to values.

NSW: “Five weeks can be long time in real estate …”

What do you get when you add a sub-prime crisis to a raft of margin calls, reduced bonuses and an interest rate hike?

The answer is a very nervous market even at the top end; leading to one of the quietest starts to a new selling season.

Last weekend recorded a miserable 52% clearance rate. The highest price paid over those two days was $1.9 million for a solid home in one of the best streets at 52 Kingston Street, Haberfield.

While there is still a lot of money out there waiting to be invested, the undoubted fact is that several buyers in the $2.5 to $6 million brackets have pulled back and are waiting to see if the financial markets stabilise.

On the supply side, while there remains a chronic shortage of properties at $15 million plus, there are signs of a loosening in the $3 to $5 million bracket; especially in Vaucluse and in the usually tightly held inner eastern suburbs penthouse market. 164/71 Victoria Street, Potts Point is being offered concurrently with the Republic 2 Penthouse at 50 Burton Street, Darlinghurst.

What happens to the inner suburban market in the medium term will be driven by developments in global financial markets and the return of investors lured by increasing rental returns. For the first time in years, residential yields are being factored into the Sydney residential market equation.

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