Considering a Home Purchase or Sale? Big banks’ revised forecasts indicate a changing Australian property market. The Australian housing market has witnessed a notable shift, prompting major banks to reassess their predictions. Recently, all four prominent banks have released updated house price forecasts, retracting their previous gloomy outlooks. This collective revision is not surprising, as banks often find safety in numbers when readjusting their positions.
Such revisions were necessitated by the undeniable reality that prices in Australia’s pivotal markets are experiencing a clear upward trend. It is widely acknowledged that Sydney’s property prices tend to lead Melbourne’s. The high-end segment reflects changes before the lower end does. Therefore, when Sydney’s luxury property market displayed signs of resurgence in February, it hinted at a future upward trajectory for the overall market.
Auction Clearance Rates Surge as the Market Shows Signs of Change. In recent weekends, auction clearance rates have been on the rise, indicating a shift in the market. Auctioneers have been experiencing a smooth sailing, witnessing soaring bids and successful sales under the hammer. Sydney’s most recent auction weekend saw a clearance rate of 73%, compared to 55% last year, while Melbourne reached 70%, up from 60% last year.
The Bottom or the Beginning of Another Boom?
The crucial question at hand is whether this marks the end of the market decline or the beginning of a remarkable upturn. The banks’ opinions on the matter are divided. The Commonwealth Bank of Australia (CBA) predicts a 3% price increase in 2023. The National Australia Bank (NAB) anticipates a slight decline for the year, while ANZ and Westpac foresee a mostly stable market for the remainder of the year. However, they all agree that 2024 will witness a return to price growth, albeit at a moderate pace.
The trajectory of lending holds significant weight in this scenario. As depicted in the accompanying chart, lending has finally ceased its decline. Australians are returning to mortgage brokers and banks, seeking increased borrowing for housing purposes. This shift is a noteworthy turning point. Surprisingly, it appears that it’s not high interest rates that pose the major obstacle, but rather the prospect of rising rates. When rates are on the rise, people tend to feel apprehensive. However, when rates stabilize, as observed in April, individuals begin to regain confidence, perceiving the worst to be behind them.
Is a Flat Market Even Possible?
Australians have become accustomed to witnessing soaring market trends or dramatic plunges, but it’s important to recognize that extended periods of stagnant house price growth are entirely possible. In fact, the Australian housing market remained relatively flat throughout the 1990s, with prices increasing by just a third over the course of that decade. This growth rate is equivalent to what was achieved in approximately 20 months during the COVID-19 pandemic. While flat markets may seem unfamiliar, they are far from implausible.
The current uncertainty surrounding property prices stems from a unique combination of influencing factors. Population growth is on the rise, although we’ve observed during the COVID-19 pandemic that it is not a necessary condition for price increases. Interest rates, on the other hand, are higher than before. However, the key question is whether it is the level of interest rates or the pace at which they are changing that affects buyers’ behavior.
Lending Guide
The lending data mentioned earlier suggests that rising rates tend to alarm buyers more than high rates alone. Additionally, while high and increasing rental costs should theoretically drive people towards homeownership, the extent to which this will occur remains uncertain. It is a scenario that the Australian property market has not encountered in quite some time. While some renters have managed to save or partially save for deposits and could enter the market, this applies to only a portion of the renting population.
Furthermore, the issue of people per dwelling is worth considering. Throughout the COVID-19 pandemic, individuals sought more space, resulting in a decrease in the average number of people per dwelling, as indicated in the accompanying chart. However, this trend can easily reverse, with fewer young adults leaving their parental homes and more shared households forming.
An increase in this measure can alleviate significant pressure on the housing market without the immediate need for new housing construction. Consequently, the upward pressure on housing prices may not be as intense as one might initially perceive by solely focusing on the mismatch between population growth and the number of dwellings being built.
Navigating the Tight Housing Market: Is it the Right Time to Buy?
The current state of the housing market is poised to be challenging. But determining the ideal time for purchasing a property hinge on people’s response to these extraordinary conditions.
We are approach the spring selling season in the latter half of the year. Paying close attention to auction clearance rates and monitoring the performance of the luxury segment in Sydney can provide valuable insights into the potential implications for the broader Australian property market. Flexibility is key, just like the banks. It may be necessary to adjust your expectations if reality unfolds differently than anticipated.
