Why demand for rundown houses is surging despite rate rises

Demand for dilapidated homes is rising as homebuyers fear missing out on a bargain despite the most aggressive interest rate rises in a generation, a real estate expert says.

Real estate strategist George Cherchian of James Chase Buyer’s Advocacy said real estate investors were now expecting rate cuts in 2024 and wanted to act early.

“There has been a surge in buyer demand, mainly driven by the belief that now is the right time to buy, before the Reserve Bank potentially cuts interest rates later this year,” he said.

Last month, a poorly maintained two-bedroom, one-bathroom home with no parking sold for $1.32 million in Annandale in Sydney’s inner west

‘This has reignited FOMO, pushing buyers towards even the most neglected properties.

‘As a result, we see that properties that are in very poor condition are selling for prices that were unthinkable a year ago.’

Last month, a poorly maintained two-bedroom, one-bathroom home with no car space sold for $1.32 million in Annandale in Sydney’s inner west.

The house, which was put up for sale for the first time in 125 years, had peeling paint on the walls and ceiling in every room.

The kitchen had an old stove, but no countertops or even a sink.

But the sale price for the Water Street property was well below the $2.325 million median for Annandale, with CoreLogic data showing a 17.6 per cent increase in the year to February.

The bargain price for the area means a new homeowner will face a hefty renovation bill, not to mention the need for an architect to redesign the interior of the terraced house.

But Cherchian said construction costs are now declining, making renovations a less daunting prospect compared to 2022, when lumber prices soared.

‘As construction costs normalize, the idea of ​​renovating a dilapidated property has become more bearable. It is seen as a viable way to add value,” he said.

The Reserve Bank raised rates for the 13th time in 18 months in November, taking the cash rate to a 12-year high of 4.35 percent, part of the most aggressive rate hikes since 1989.

But Commonwealth Bank, Australia’s largest home lender, now expects the RBA to cut rates six times by mid-2025, including three cuts by Christmas.

This would see the RBA cash rate fall to 3.6 per cent in December for the first time since May 2023.

Commonwealth Bank head of Australian economics Gareth Aird also predicts three more cuts in the first half of 2025, which would push the RBA cash rate down to 2.85 percent for the first time since December 2022.

But the sale price for the Water Street property was well below the $2.325 million median for Annandale, with CoreLogic data showing a 17.6 per cent increase in the year to February.

Real estate strategist George Cherchian of James Chase Buyer’s Advocacy said real estate investors were now expecting rate cuts in 2024 and wanted to act early.

The 150 basis points easing in nine months would represent the most generous relief for home borrowers since the Reserve Bank cut rates by 425 basis points in 2008 and 2009 during the global financial crisis.

It would also mark the first relief since November 2020, when interest rates were cut to a record low 0.1 percent during the Covid pandemic.

Even as interest rates started to rise, a damaged house in Wyong on the NSW Central Coast sold for $570,000 in May 2022.

The house, with boarded-up windows, had holes in the plaster walls, graffiti on the ceiling and was marketed as a “renovation pleasure.”

The suburb’s average house price now stands at $824,061, after rising 17.6 per cent over the past year.

Even as interest rates began to rise, a damaged home in Wyong on the NSW central coast sold for $570,000 in May 2022

The house, with boarded up windows, had holes in the plaster walls, graffiti on the ceiling and was marketed as a ‘renovation pleasure’

The suburb’s average house price now stands at $824,061, after rising 17.6 per cent in the past year

Mr Cherchian warned potential buyers not to proceed too hastily, advising them to bear in mind that refurbishing a dilapidated house was expensive.

“While the initial lower purchase price of a ‘fixer-upper’ may seem attractive, the reality of renovation can often be a rude awakening,” he said.

“Costs can add up quickly, and there are always unforeseen challenges that can turn what seemed like a good deal into a financial burden.

‘The best investment decisions are made with a clear understanding of the risks and opportunities involved. So do your homework.’

A record 518,000 net migrants moved to Australia in the 2022-2023 financial year, pushing up house prices in major cities despite rate increases.