[Podcast] A leading economist’s thoughts on those forecasts of a property market collapse, with Dr. Andrew Wilson

We seem to have a new national obsession.

It’s even bigger than worrying about who’s going to win football at the weekend.

According to our big banks, Australians must brace for the worst housing correction on record as rising interest rates will strangle the property market.

And while Australia's economic fundamentals are still strong, consumer confidence has taken a significant hit and that's affecting our housing markets with buyers being more cautious and many taking a wait-and-see approach, while sellers’ confidence is more fragile.

So, will property values fall 20 or 30%, as some banks suggest?

Those topics are what we talk about in this week’s Property Insider video as Dr Andrew Wilson, Australia’s leading housing economist and chief economist of MY Housing Market gives you his forecasts for our housing markets for the next 6 months.

And considering his strong forecasting track record, I believe he’s worth listening to.

We also discuss some of the other property news that has happened over the week.

Is a property market collapse on the way?

This month the Reserve Bank of Australia delivered a third consecutive interest rate increase.

Additionally, scare headlines about imminent property market collapse have been alarming many Australians.

But interest rates are still below neutral, in other words, they are still stimulatory.

That means we are going to have more rate rises moving forward putting on mortgage repayments, but it's also much more than just interest rates that drive our property markets.

We are in the adjustment stage of the property cycle and property values are falling in Melbourne and Sydney. But other segments of the market are still performing strongly.

Other negative influences at present include:

• Fear of rising inflation and cost of living pressures
• Rising interest rates reduce borrowing capacity
• Affordability constraints
• Uncertainty about our economic future with all the talk of a recession overseas, ongoing geopolitical problems, the share market falling

On the other hand, there are many strong fundamentals:

• A shortage of good properties for sale and virtually no properties to rent.
• International immigration is picking up and this will increase the demand.
• There is little new construction in the pipeline – we’re not building enough dwellings.
• Our still-growing economy is very resilient.
• Unemployment is at historically low levels.
• Wages are starting to grow.
• Household balance sheets are strong.
• Many borrowers are ahead in their mortgage payments.
• We have a strong banking system that has been strict in its lending criteria meaning very few non-performing loans.
• Construction costs keep rising meaning the replacement cost of properties will rise.
• There are still Government incentives to encourage first-home buyers into the market.

Of course, all the gloomy predictions for the property market could become a self-fulfilling prophecy as fears about the future push buyers and sellers to sit out, causing prices to fall faster than otherwise.

But Dr Wilson predicts strong market fundamentals will soon begin to attract buyers again.

Housing loan approvals rebound, while the fixed rate share falls further

Housing loan approvals are clearly off their recent highs and are likely to continue to turn lower as deteriorating housing market sentiment and higher rates bite on loan demand, but there is no sharp rollover yet apparent in the data up to May.

Owner-occupier loan commitments peaked in May last year, and are now 9.7% lower, though have flattened out in recent months.

Investor approvals continued to grow over the past year, but peaked in March, now 4% off their recent high.

The investor share of new loans has recovered from a 2020 low of 23.1% to around its long-run average and stood at 34.5% in May.

Dwelling approvals rebound in May

Dwelling approvals rose 9.9% month on month in May.

The stronger-than-expected result was on the back of a 32.0% m/m rise in the volatile apartment approvals series following two consecutive months of sizable declines.

In contrast, the downtrend in detached approvals remains intact, with detached residential approvals 2.7% lower in the month and 32.5% off their peak in March 2021.

That said, the pace of decline has slowed over recent months even amid a capacity-constrained building industry, full residential building pipelines, and large price increases.

Auction clearance rates fall

The usual housing market winter slowdown continues to be enhanced by the impact of surging interest rates on affordability - and the influences of the higher rate on buyer and seller confidence.

The national auction market reported a clearance rate of 63.2% at the weekend which was lower than the 64.2% reported last weekend and significantly lower than the 79.5% recorded over the same weekend last year.

Links and Resources:

Michael Yardney

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Some of our favourite quotes from the show:

“As you say, boy are the fundamentals strong” – Michael Yardney

“Do you need a 20-million-dollar trophy home when your 15-million-dollar home will do quite nicely?” – Michael Yardney

“There’s no such thing as a rich victim.” – Michael Yardney

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