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, according to RealEstate.com.au…
Experts say months of talk about the impact of interest rate hikes and negative headlines about what have been relatively modest home price declines have understandably prompted would-be buyers to put everything on hold. But there are several other indicators that the Australian housing market is beginning to stabilise and confidence is starting to rise.
According to some experts, “We’ve passed peak fear,” and here’s why…
1. Clearance rates have been healthier 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.
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 and 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,” says RealEstate.com.au. “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.”
A “steady and consistent improvement” in auction clearance rates has also been noted in many cities over recent weeks and good quality properties in desirable areas continue to enjoy strong demand.
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,” says RealEstate.com.au “Regional areas remain up almost 50% since March 2020. Capital city prices are up 25% over the same time period.”
And the pace of price falls has slowed “significantly”. “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. 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 skills shortage is a significant increase in the annual permanent migration cap. 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. That increased demand will meet contained levels of supply, putting upward pressure on prices.
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.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.
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. 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.
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, many buyers and sellers will simply decide that they’re tired of waiting and decide to act.
{Source: RealEstate.com.au}
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