How’s the Market?
Lots to watch, and much to ponder….
The true status of the property market is not easily understood at present, mainly due to historically low stock levels. As the Mortgage Cliff that was meant to derail the housing market looms, many buyers are surprised to find themselves in competitive bidding situations for the best listings.
A symptom of a weak real estate market is excess stock levels with extended ‘days on market’. At present in some areas, seller supply is insufficient to meet existing buyer demand. In a double win for vendors, the supply/demand imbalance is also reducing ‘days on the market’ before a sale is secured.
Whilst graphs and forecasts suggest what the market could or should do, ultimately the market does what the market does. And if one is to believe Core Logic data, some property is rising in 2023.
Some of the retail banks have become more positive in their outlook for property prices heading into 2024. There is a growing sense of optimism that property prices can avoid a sharp correction resulting from the Mortgage Cliff.
Reading the season
If stock levels are low heading into winter, rarely, stock levels would rise during winter. Hence, buyers may not enjoy a plentiful array of listing supplies until September/October as spring hits. The auction clearance rate has crept up during 2023, as stock levels subsided. Most agents are experiencing low listing volumes but a more motivated and determined vendor coming to market. Hence the jump in clearance rates.
If stock levels were to rise sharply in a short time frame though, it would offer an insight into the true balance between buyers and sellers.
Whilst seller sentiment was hurt during 2022, there is every reason prospective vendors can be cautiously optimistic over the next few months. Taking advantage of any bounce in prices and sentiment may prove to be a savvy play in time. We have already seen many vendors who did not achieve a sale in 2022 come back to the market and secure a sale in the first third of 2023.
The ongoing rental crisis is here to stay.
The RBA has noted that they are closely watching the economy for any sign of a ‘lag effect’ whereby the interest rate increases of 2022 impact households in late 2023.
The Rental Crisis for tenants has been a life raft for many mortgage holders, who have taken advantage of the higher rental returns on investment properties.
As the RBA increased rates over the past 12 months, investors have accelerated the rental increases to offset their rising mortgage costs. The problem for the RBA is that rents are one of the largest components of the CPI basket. The RBA is inadvertently in a negative feedback loop. Higher interest rates designed to fight inflation are indirectly pushing rents up, which then puts additional pressure back on inflation/ CPI.
This negative feedback loop explains why RBA Governor Philip Lowe cautioned Governments against a migration surge without creating additional housing to cater to the inevitable increase in population. A migration surge without additional housing will exacerbate the rental crisis.
Creating additional supply in a housing market is easier said than done though, particularly when inflation is impacting the construction sector so severely.
Recently, Commsec posted on social media ‘Over the past year, Australia’s population over 15 years of age has grown by 523,200 or 2.3% – the fastest in 14 years. The population of 20- 24 years old is up a record 4.7% over the year or a lift of 84,500’. This comes at a time when Australia is facing a construction downturn. The demand for housing is expanding at record levels whilst supply factors are constrained. Hence the reason the rental crisis is deep-rooted and not easily fixed.
Lots to monitor, much to ponder…
By Peter O’Malley, author of Inside Real Estate
