After experiencing the sharpest downturn in Australia's housing market history, new research by JP Morgan suggests that the situation could soon turn around.
The research shows that house prices, which fell by 9.1% since their peak in May 2022, are expected to stabilize sooner than many are predicting.
At the beginning of this month:
- Dr. Andrew Wilson's My Housing Market reported the national capital city's quarterly median house price increased by 0.2% over February compared to January - rising to $1,005,044.
- Proptrack reported that the Australian housing market downturn came to a halt in February, and home prices increased by 0.18%, leaving them 3.90% lower than their peak. The suggested that all capital cities experienced an uptick in prices, except for Hobart, which saw a decline of 0.29%.
- According to CoreLogic, house prices experienced a modest 0.1% fall in February.
Now it's probably too early to call this a fundamental shift, rather a false dawn, but let's wait an see.
However, the Australian Financial Review reports that analysis of auction clearance rates by JPMorgan suggests that the market could stabilize by mid-year, implying the national peak-to-trough price decline would end up being 10%.
Auction clearance rates have improved in the past few weeks, with an average of 64% compared to 54% in December.
Tom Kennedy, the author of the report, notes that historically, clearance rates are closely related to house prices, with changes in clearance rates leading price growth by around six months.
Despite the potential for COVID-19-related disruptions and RBA tightening to compromise this relationship, the correlation through 2022 remained robust, with prices broadly tracking the path implied by the turnover data.
Kennedy notes that the biggest risk to this outlook is the Reserve Bank of Australia overtightening in response to persistently high inflation.
Despite having already delivered 325 basis points in interest rate rises since May, economists expect rates to rise even further, with the cash rate predicted to peak in September at 4.2 per cent.
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The report warns that the biggest risk to this outlook is the Reserve Bank of Australia overtightening in response to high inflation.
Overall, the research is positive news for homeowners and property investors.
While the downturn has been challenging, the possibility of a stabilization in the market by mid-year offers hope for a much-needed recovery.
At Metropole we've been predicting a property market reset later this year when interest rates eventually peak (and that's probably not that far off), and when inflation is under control (and inflation has probably already peaked) as consumer confidence returns.
That means there is currently a window of opportunity for homebuyers and property investors with a strategic long-term focus.
By the way...This weekend March commenced with more positive results for capital city auction markets generally although auction numbers were down and clearance rates lower for most compared to last weekend.
The national auction market reported a clearance rate of 69.1% at the weekend which was lower than the 72.4% reported last weekend and still lower than the 73.5% recorded over the same weekend last year.