Rapidly rising interest rates and gloomy predictions of sharp property price falls from some have sparked widespread uncertainty in housing markets this year, but there are signs that the fear is fading.
1. Healthier clearance rates than expected
Each Saturday across the country, a high number of sellers are continuing to take their properties to auction despite bubbling uncertainty in the market. And each weekend, broadly speaking, good levels of buyers are out in force and snapping up quality homes, with the ‘clearance rate’ – the percentage of successful sales under the hammer – providing an indicator of market stability.
Justin Nickerson is the director of Apollo Auctions and explained that weekly clearance rates are a real-time signal of market sentiment – and all signs indicate that “buyers and sellers have actually been galvanised” by the current conditions, Mr Nickerson said. "It is clear that bidders and sellers are committing to purchase at auction – even though we recorded lower attendance and bidder numbers in September,” Mr Nickerson said.
The impact of the snap public holiday in response to the death of the Queen saw some vendors delay auctions. The AFL Grand Final also impacted Saturday auction activity. "However, what was different to last month was the improved auction clearance rates in both Brisbane and Sydney,” Mr Nickerson said."Our team of auctioneers indicate that buyers and sellers have been galvanised by the increasing interest rate environment because they recognise that their opportunity to buy or sell well may not last forever.”
Colin Lee, chief executive officer of Inspire Realty, said auction clearance rates across the board remain healthy. “The national auction clearance rate dipped as we came out of 2021 and was at its lowest in August 2022,” Mr Lee said. “Now, in October, they’re up by about 4% to 5%. While still low, it’s a clear indication the market is returning to stability.”
2. Worst price fall fears haven't eventuated
Earlier this year, some real estate pundits and economists predicted property values would slump by 15% across the course of 2022. The latest PropTrack Home Price Index shows values nationally are just 3.4% down from their peak, with a modest 0.9% decline recorded in the month of September. Sydney property prices have fallen 3.7%, with Melbourne home prices down 2.1%.
“Despite recent falls, prices are still significantly above their pre-pandemic levels,” Paul Ryan, senior economist at PropTrack, said. “Regional areas remain up almost 50% since March 2020. Capital city prices are up 25% over the same time period.” BuyersBuyers also noted a “steady and consistent improvement” in auction clearance rates in many cities over recent weeks and good quality properties in desirable areas continue to enjoy strong demand. And the pace of price falls has slowed “significantly”, Mr Ryan noted.
Doron Peleg, chief executive officer of BuyersBuyers, said prices will likely continue to slide but could bottom out as soon as the end of the year. “Property market indices tend to lag, because there’s always going to be a delay between offers being made and property sales being settled, recorded, and reported,” Mr Peleg said. “However, the peak of the ‘fear’ phase of the cycle now appears to have passed, and price declines are likely to become less steep from here, before being confirmed as bottoming out in the New Year.”
3. Migration likely to increase demand
Part of the government’s response to Australia’s crippling skills shortage is a significant increase to the annual permanent migration cap to 195,000 people. That flood of new people into the country will coincide with an imminent rebound in the international student market, with visa applications surging in recent months. “We expect to see the resident population of Australia increase by one million over the next two to three years,” Mr Wargent said.
That increased demand will meet constrained levels of supply, putting upward pressure on prices, he said. Mr Lee said the arrival of hundreds of thousands of people in the next year alone will mark the largest permanent and temporary migrant intake on record. “And it’s happening in the midst of a housing shortage,” he said.
“Given the average household is about 2.2 persons, the arrival of 230,000 people in the next year equates to a need for an additional 105,000 properties. Nationwide, we only have 80,000 properties currently available for rent. “Rental vacancy rates are under 1% nationally, while rent prices are booming. Across many population centres, rents are up 10% to 15% since the start of the year. “In short, Australia is massively undersupplied when it comes to rental properties and we’re about to see demand explode due to migration. This can only lead to increasing property values as we head into 2023.”
4. Interest rate uncertainty is easing
Almost all economists expected the RBA to hike interest rates by another 50 basis points in September, but the central bank defied expectations with a quarter of a percent rise. “The return to business-as-usual rate hikes signals the RBA is done with frontloading the tightening cycle, now slowing the pace of their tightening cycle,” PropTrack senior economist Eleanor Creagh said. “This could give prospective buyers a confidence boost.”
What happens in coming months with interest rates remains “a key uncertainty” and could see some homebuyers continue to delay their purchasing decisions in favour of a wait-and-see approach. “But if the RBA soon pauses their tightening cycle, it’s possible that home prices find a floor sooner,” Ms Creagh said. Rapidly rising interest rates and subsequently lower borrowing capacities have contributed significantly to the home price falls recorded in 2022.
But Ms Creagh said the biggest change this spring compared to last year is the amount of choice that would-be buyers are enjoying. “There’s a lot less competition, the stock isn’t moving as quickly because the fear of missing out has subsided, and there are more homes on the market,” Ms Creagh said. “The expectation that interest rates might not climb so high and so fast could give some prospective buyers a confidence boost, leading to an uptick in activity through October.”
At the end of the day, Mr Wargent said that many buyers and sellers will simply decide that they’re tired of waiting and decide to act. “After months of gloomy headlines, eventually consumers tend to tire of hearing the same old messages and move on, particularly in the absence of a major property price correction, and a lot of buyers are doing just that now,” he said. “At some point, you just have to choose to get into the market.”
Source: Realestate.com.au - Shannon Molloy, News Editor
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