Welcome to The Agency National Property Market Report Spring Summer 2022
Introduction - with Geoff Lucas
Managing Director & CEO, The Agency
Seldom before have our country, economy and industry been confronted with so many changing dynamics. Most recently, the RBA’s aggressive raising of interest rates has been the biggest factor impacting the real estate market.
By November the RBA had lifted interest rates for a seventh consecutive time, which included four increases of 50 basis points and, most recently, two rate rises of 25 basis points each. The fallout – in the form of declining prices – started in the Eastern States. However, in October, Western Australia’s property market has also started feeling the effects.
Despite this, there is cause for optimism. Many economists argue that a major component of the current inflation is transitory. As blockages in global supply chains ease and interest rates curb consumer demand, they expect the RBA will begin lowering rates again. In line with this, we believe rates will begin to fall slightly in the second half of next year.
The RBA’s October 25 basis point rise was smaller than many anticipated and was followed by a second rate rise of 25 basis points in November. This had an immediate impact on sentiment, with the ASX’s value rising 3.8% that afternoon. While there may be a few rate rises left, property buyers are beginning to see an end to the cycle and realise the current strong buyer’s market has a limited shelf life. Many are starting to act more decisively when they find a suitable property.
As sellers begin to see this change in buyer sentiment, they too will become more comfortable entering the market, and we should see increased market activity in the lead-up to Christmas. That said, the traditional spring selling season will come later – and feature significantly lower volumes – than in previous years.
In 2023, we expect the market will move back to equilibrium – largely as a result of reduced interest rate volatility and increases in immigration contributing to demand. Against this, we’ll also see many fixedrate borrowers rolling off to new higher rates between June and December 2023. However, continued short supply should put a buffer under prices and could eventually lead to small price gains.
In many of Australia’s capitals there remains a dire housing shortage. While this may not be apparent in the sales market right now, it is still evident in the rental market. The national vacancy rate now sits at around 1%, and rents rose by 9.1% around the country last financial year. With population growth back on the agenda and the ABS Buildings Approval Index showing construction approvals falling 17.2% over July, the lack of supply won’t change any time soon. In fact, it could get much worse. We expect property values in Queensland and WA will be the most positively impacted. Both states are underpinned by strong economies and are likely to see many new arrivals over the next few years. Neither is experiencing the same kind of market-softening that Sydney and Melbourne are going through. And, in WA at least, wages are high while property remains comparatively affordable. This means there is still room for substantial price growth.
If you’re considering a move, our advice is to search now, before buyer levels recover. It’s often better to trade up or buy property for the first time in a subdued market with lower buyer competition than waiting for prices to turn again. I’d encourage you to contact a trusted and experienced agent for advice. Most importantly, because property ownership is a long game, be decisive yet deliberate in your decisionmaking and cognisant that we may not see the rapid gains of the past few years for some time.
We believe we’re entering a period of smaller price fluctuations and greater equilibrium between buyers and sellers – a healthy market for Australian families moving homes in 2023.
The National Property Market - with Matt Lahood
Real Estate CEO, The Agency
As we move into spring, there’s little doubt rising interest rates have started to bite, discouraging property market activity and causing home values to decline.
Right across Australia, property prices soared high through 2021 and into early 2022. Then, in May 2022 – the same month the RBA began raising the official cash rate – CoreLogic’s National Home Index fell for the first time in almost two years. As the RBA has raised interest rates every month since then, the National Home Index has experienced falls. In September 2022, the national median dwelling price stood at $730,163, almost -2.5% below its April 2022 peak. At the same time, the national auction clearance rate has fallen from a high of well over 80% in mid- 2021 to less than 60% today.
These national figures paint a picture of a property market trying to come to terms with uncertainty. With inflation still high around the world, no one can say with confidence when the rate rises will stop. However, the RBA’s decision to raise rates by a standard 0.25% in October – rather than the 0.50% it had lifted rates by four times previously – gives some indication that confidence may soon return.
But rising interest rates and falling clearance rates don’t tell the full story of today’s market. Some sectors continue to perform strongly, while others are likely to bounce back quickly once the official cash rate stabilises.
Nationally, premium property – which isn’t as influenced by interest rates as most other segments – has been largely unaffected. We’re still seeing record sales at the top end of most markets, and the main challenge has been a lack of homes for sale rather than a lack of demand.
Interestingly, what constitutes a premium suburb or home has changed too. The pandemic has made many people more geographically independent. Many prestige buyers have decided that what they really want is a lifestyle by the sea, or in the country, with room for a home office (or two). So, while the prestige market once encompassed mainly harbourside Sydney suburbs, inner-city Melbourne suburbs and riverside Perth suburbs, it is now much broader. Parts of South-East Queensland – including the Sunshine Coast and Gold Coast, as well as typical holiday destinations in NSW and Victoria – are recording prices once reserved for these traditional blue-chip areas.
In Sydney, we’ve also witnessed the increase in prestige of the beaches; suburbs such as Bronte (median house price $6.575 million) and Tamarama (median house price $7.9 million) are displacing the traditional heavy hitters of the Sydney property market at the top of the median price list.
At the other end of the spectrum, lower home prices and an exceptionally strong rental market are starting to encourage first home buyers to take the plunge. ABS data reveals that home loans to first home buyers rose 10.4% over August 2022, even though the total number of home loans fell 3.4%. It’s great news that more Australians are entering the property market, especially as owning your own home is often the single most important factor in building long-term wealth.
It’s not only first home buyers who are benefitting from the current market conditions either. Anyone upsizing should consider doing so now rather than waiting. The price gap between properties has fallen, so even though interest rates are higher, you’ll likely need to borrow less. There is also greater choice and less competition when it comes to finding the perfect next home. You just need to be patient when it comes to selling your current property.