Look across the media landscape and you might be convinced we are in for a long hard ride when it comes to property prices for the rest of 2022. There were headwinds buffeting the property market towards the end of 2021, but the first interest rate rise in April was really the defining moment. It saw buyers become immediately nervous about market prospects. It was almost as if they’d been hypnotised into anticipating forever higher prices before the RBA suddenly snapped them out of it.
Since then, the increases have not stopped. Interest rates have risen on a monthly basis with the latest uptick this month of 0.5 per cent taking the cash rate to 1.85 per cent.
But interest rates are not the only market influencer. I have seen information which indicates the price downturn may not last as long as some fear – in fact, depending on what and where you buy, we may already be bottoming out.
Silver linings
Buyer confidence has dropped, there is no denying it. This is perhaps most immediately measured in auction clearance rates. CoreLogic numbers reveal Sydney’s clearance rate for the week ending 1st August was 56.6 per cent. This is in line with other soft results recorded throughout the second quarter of 2022 and is a long way below the 76.1 per cent logged during the same period in 2021.
While buyer confidence is a legitimate driver of lower property prices, it is also very reactionary. Purchasers read dire warnings or see interest rates rises and they become immediately cautious. It is an emotional response to bad news.
But look beyond these glaring headlines and there are some very positive fundamentals to consider.
The first is fewer listings. One of the primary reasons property prices skyrocketed in late 2020 and throughout 2021 was the limited supply of listings. It is why economists’ predictions at the start of the pandemic about values plummeting did not come true. Vendors simply chose to not list their homes. The lack of supply was met with good demand and prices rose.
Looking at the current metrics and you will see listing numbers are still very tight. In fact, supply levels are even lower than this time last year.
CoreLogic’s data shows listings over the four weeks ending 24th July are down by 3.2 per cent compared to the same time last year, and are 25.1 per cent below the five year average.
And that’s just on a national level. If we look at suburb level stats, SQM Data numbers show Lilyfield’s July listings are down 24 per cent compared to April. Newtown listings are down 23 per cent compared to just four months ago. Annandale has seen July listing numbers drop 59 per cent compared to November 2021.
Meanwhile, buyers continue to be drawn to Sydney’s blue-chip inner city, Inner West, northern and Eastern Suburbs.
A slowing in price falls is telling too. For example, one month ago we conducted research into Lilyfield which revealed values had fallen around eight per cent in the previous 12 months. This same exercise just a week ago shows the 12-month fall is now closer to four per cent.
What is really happening?
I believe two things are occurring here.
One is that investors and homebuyers are feeling safe about purchasing in bullet-proof, blue-chip suburbs. They are on a flight to quality seeking locations with a history of price resilience. Secondary locations on the other hand will probably bear the brunt of any downturn in the shadow of any looming economic slowdown.
The second thing is that many buyers are becoming more confident about interest rate settings. Yes, they are rising and putting pressure on borrowers, but most economists believe the cash rate will pull up somewhere around the 2.5 per cent mark. There are already signs global inflation is attenuating, and Australia is likely to follow suit as the current rate setting filters through the economy. While a cash rate around 2.5 per cent is likely, that would still be half of the average cash rate we have seen over the past 30 years. I think buyers are already becoming comfortable with higher interest rates and are considering re-entering the market.
The key, as always will be asset selection. As professional property buyers, we constantly unearth real estate that will deliver excellent long-term results to purchasers. If you are keen to buy but have been holding off due to the headlines, why not contact Buyer’s Domain. We can discuss your options and come up with a smart strategy to secure your next property at the right price sooner.
