How are our property markets doing now that we're halfway through spring?
Well, rising interest rates have quickly rebalanced the housing market from last year’s extreme growth levels, haven't they?
The current stage of the property cycle is now characterised by widespread price falls.
In fact, prices nationally are now sitting 3.4% below their March peak, with prices falling by more in Sydney and Melbourne, but less in the other capital cities.
As borrowing capacities are constrained and buyers’ budgets shrink, more expensive regions and property types are seeing prices falling fastest.
Further rate rises will increase borrowing costs and reduce maximum borrowing capacities, weighing further on prices.
However, this will be offset by tight rental markets and rental price pressures, rebounding foreign migration, low unemployment, and housing supply pressures.
Auction clearance rates are stabilising
Auction numbers have picked up as spring has unfolded but clearance rates are a lot lower than spring last year, reflecting the changing dynamic in the property market.
However, clearance rates are now holding consistently above the lows seen over the second quarter of this year when interest rates first started rising, perhaps indicating that sentiment is finding a floor.
Ms Eleanor Creagh, Senior Economist at REA shared her insights in a recent market commentary:
"It’s no longer a shock that interest rates are rising fast.
As a result, sellers are adapting to market conditions and reigning in price expectations, while buyers are taking advantage of the choice available along with less competition."
Properties are taking longer to sell
The latest PropTrack Listings Report shows the number of newly-advertised homes for sale on realestate.com.au fell by 7.5% in September.
But although new listings fell in September, the overall level of stock is higher resulting in greatly improved choices for buyers.
Ms Creagh commented:
"The total stock listed for sale remains up sharply compared to last year (when lockdowns had limited activity and reduced stock on market).
The total number of properties listed for sale in September was up 26.8% year-on-year, and the total number of properties listed for sale is above the prior decade average.
This lift in available stock on market along with moderating buyer demand is easing competition, buyers have more time to negotiate and the fear of missing out has subsided with properties are taking longer to sell as a result.
The median number of days a property was listed on realestate.com.au in September 2022 climbed 1 day from August to 44 days and has steadily climbed from the record low of 30 days as the market has cooled."
Buyers have the upper hand this Spring
On a per-listing basis demand from potential buyers has eased as the pace of new listings has been historically strong against a backdrop of moderating interest to buy in recent months.
In the combined capital cities per listing, demand fell a further 1.4% month-on-month in September to sit 13% below levels recorded in September 2021.
Ms Creagh explained:
"Across the capital cities balance has shifted back in favour of buyers most significantly in Hobart with per-listing demand from potential buyers falling 43% when compared to September last year.
That means in September there were around half as many potential buyers for each property as there were in the same period last year.
But the good news for sellers in Hobart is that per-listing demand still remains 5% above pre-pandemic levels.
It’s a similar trend across every other capital city and regional territory, except Perth and Adelaide and their respective regional territories.
In these four regions, potential buyer demand per listing remains above levels recorded in September 2021, with per-listing demand up 30% in regional SA compared to September last year."
What's ahead?
Though activity will still be muted relative to last spring, the second half of spring usually brings the seasonal peak in activity.
Ms Creagh said:
"The RBA appears done with frontloading the tightening cycle, now slowing the pace of their hikes.
This could give prospective buyers a confidence boost.
In fact, the Westpac Melbourne Institute Index of Consumer Sentiment measure of House Price Expectations suggests just that.
With the first sample responses preceding the RBA decision showed a 16% fall in the Index, while the second sample (after the RBA) showed a lift of around 8% relative to the September print.
The spring selling season may have got off to a slow start with the public holidays weighing on activity, but with sentiment finding a floor, alongside the expectation that interest rates might not climb so high and so fast, we can expect a bit of a boost in buyer confidence leading to an uptick in activity through October."
Source of charts and commentary: REA Insights
