Here’s what the data tells us about today’s property market:
Spotting the signs we are in a buyers’ market for the first time in years
Overall Australian dwelling values fell by -1.3% in July, marking the third consecutive month CoreLogic’s Home Value Index has fallen.
In fact, according to the data, five of the eight capital cities recorded a month-on-month decline in July, led by Sydney and Melbourne where values fell -2.2% and -1.5% respectively.
Brisbane also edged into negative growth territory for the first time since August 2020, with values down -0.8%. Canberra (-1.1%) and Hobart (-1.5%) also declined over the month.
Perth (+0.2%), Adelaide (+0.4%) and Darwin (+0.5%) remained in positive growth through July, however, most of these markets have already recorded a sharp slowdown in the pace of price growth since the first interest rate hike in May.
The Reserve Bank continues to be hawkish, meaning it’s going to keep increasing the official cash rate in its fight against inflation and, as a result, variable rate mortgages will also keep going up.
But interest rates are not the only factor at work in today’s Australian property market.
In this blog, with the help of our in-house property heroes, we’re here to help you unpack some of the broader and more nuanced factors.
Read on to discover what the data means for investors looking to buy and why we think it’s currently a buyers’ market for the first time in years!
Stock levels are high and buyers have lots of choice
The end of May saw a surge in new listings responding to the election being over plus the first interest rate hike.
A lot of sellers decided to get out in front of the problem, rather than stay on the sidelines and wait. However, many of them have struggled to sell, possibly because they were hoping to get last year’s prices!
As a result, there is now a lot of unsold stock sitting on the market that is unlikely to be absorbed anytime soon. In fact, assuming we get the usual spring surge in listings, sellers could really be facing a stark reality.
This means that buyers have a lot of choice, especially in Sydney and Melbourne where, according to CoreLogic, total listings are already 8-10% above five-year averages.
Auction clearance rates are low and time on market is creeping up, so more properties are selling privately
The build-up in older listings will put further pressure on prices as vendors need to meet the current market conditions by closing the price gap.
This is also good news for investors looking to buy!
Selling conditions have worsened around the country, with the time it takes to sell a property blowing out by 10 days to 30 days on average over the past three months. In Sydney, homes are now taking 33 days to sell, up from a recent low of 20 days in the three months to October, indicating more overlap of listings stock and greater options for buyers.
The national auction clearance rate is hovering only just above the 60% mark which is usually considered the borderline between a sellers’ and a buyers’ market. More and more vendors are choosing to accept private offers before auction, rather than run the risk of the property being passed in, or dropping the reserve.
We expect more properties will be offered for sale by private treaty, rather than auction.
This is also good for investors!
As vendor confidence falls, sellers are less likely to take the risk of testing the market under true auction conditions, and they are more likely to enter into a private negotiation and accept your offer!
High inflation and tighter household budgets mean less competition from owner-occupiers
Everyone is feeling the impact of the increased cost of living.
The combination of higher interest rates and very high inflation is impacting household balance sheets and lowering general consumer sentiment and business confidence.
It all contributes to lower home buyer sentiment because confidence is key.
This will hit owner-occupiers harder than investors because investors are driven by different motivations. Owner-occupiers usually have an emotional connection to the kind of house and location where they want to live. This in turn limits their market choices and risk appetite.
On the other hand, investors can make a choice based on risk and return parameters driven by unbiased data.
Investors also have the benefit of being able to include the rental income from the tenant in their debt serviceability assessment to improve their affordability. Plus experienced investors, who have equity in their portfolio, still have the opportunity to access equity release loans to provide cashed-up fire power to buy in the market.
We therefore think investors will face less competition from owner-occupiers and we expect investors to continue to have more buying power than owner-occupiers as interest rates go up.
Aussies love creating long-term wealth through property and PropHero provides the data and digital solutions that enable you to build a property portfolio that outperforms the market and gives you the best chance of minimising your investment risks both now and in the future.
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