Welcome to The Agency National Property Market Report Winter 2023
Introduction - with Geoff Lucas
Managing Director & CEO, The Agency
There are so many factors at play in our property market right now, but this season we’re expecting less volatility than we’ve seen in recent times. This should lead to greater choice and opportunity for Australia’s homeowners and home seekers.
In the three months to April, the national dwelling price rose 1.0%, with Sydney’s median price rising 3.0%. This is the first time we’ve seen a broad market gain for a year.
Many of us have been looking for signs that the market has turned. And to some extent, this data reveals that it has. But those hoping for a return to the heady days of 2021 are likely to be disappointed. We believe we’re seeing a return to ‘normal’ conditions, where there is less price volatility than we’ve seen over the past few years, and values neither rise nor fall too rapidly.
For most of us, owning property is a long-term proposition, with the average hold time on a property now 9.1 years.
Domain research shows real estate booms tend to last an average of 33 months, and prices rise an average of 32.7%. Downturns last an average of nine months, and prices fall an average of three per cent.
Even in the context of booms and busts, the last few years have been outliers. The ABS reports that in 2021 Australia recorded its strongest-ever annual property price growth, with the median rising 23.7% – roughly twice the pace of a ‘standard’ boom. This was followed by the sharpest decline on record, with the median falling -7.9% in the year to February 2023, according to CoreLogic.
2021’s property boom took place within the context of record low interest rates. These allowed people to borrow more than they were previously able to. Interest rates have risen dramatically, so people simply do not have access to the same amount of finance they once did. This places a natural ceiling on the rate of any future gains, especially in markets such as Sydney and Melbourne, where the cost of the median dwelling is many times the median income.
Around the country, stock levels have remained at historic lows. This shortage of homes for sale is especially acute in Sydney. Although the harbour city’s auction clearance rate is now consistently over 70%, Sydney is recording roughly half the number of auctions as Melbourne, despite having a larger population. Any recent gains made in Australia’s largest metropolitan centre may be tested if this equation changes and more supply comes online.
Increased immigration is beginning to have a strong influence on the property market. We’re seeing record numbers of new immigrants. While new arrivals from overseas usually impact rental demand rather than purchasing demand, the incredibly tight supply of rental properties means we’re now seeing a ‘spillover’ into the sales market. This is likely to support housing prices into the medium term and ensure there is no price crash through the so-called ‘mortgage cliff’ period, where over 850,000 fixed loans will be moving from circa 2% rates to circa 6% rates between July 2023 and January 2024.
First-home buyers are experiencing, for the first time in their lives, an environment in which their saved deposits are attracting interest at rates of up to 6%. Not only does this encourage saving, but it also restores some faith in people’s ability to become homeowners after the past few years had disillusioned many. Investors are also being drawn in by lower sales prices, higher rents and better yields.
To date, we haven’t seen distressed sales come to market, even in the face of increasing interest rates. While increased rates will create some increased supply, we believe demand will cushion Australian prices from dramatic falls. Although it’s possible for some further softness in prices, we’re entering a more neutral market phase.
We believe this creates a better, safer and more comfortable environment for Australian families to feel more confident buying and selling property, as well as greater opportunities to move into a home that suits their changing circumstances.
The National Property Market - with Matt Lahood
Real Estate CEO, The Agency
After a year of instability, there are signs Australia’s property market is turning. Transaction activity is on the up, auction clearance rates are rising and, most importantly, the national median dwelling value is registering a small gain for the first time in 12 months.
CoreLogic data reveals national values rose 1.0% in the three months to April, with prices rising in four of the eight national capitals (Sydney, Melbourne, Brisbane, Perth).
Sydney led the charge, with the citywide dwelling value rising 3.0% to reach $1,031,138. Although Sydney is easily the most expensive Australian city in which to buy property (and perhaps because of this), it suffered the most significant falls of any capital when the market started deteriorating. It also led the nation into the slump, registering the first of 12 straight months of declines in February 2022, while prices in other cities were still rising.
Now, it seems Sydney is the first capital city to emerge from the property market funk. Domain reports that auction clearance rates have been consistently sitting around 70%, even as more stock begins to hit the market. With the RBA putting a pause on rate hikes in April, there is cause for some optimism in the Sydney market. It’s worth remembering that when prices in the harbour city turn, they often turn fast. At the end of the last property market slump between 2017 and 2019, Sydney’s house prices lifted 5.7% in a quarter. Of course, we should also keep in mind that higher interest rates could put a cap on growth, as many buyers won’t be able to borrow as much as they could a year ago.
While Sydney may be the market that’s strongest at this stage, we believe that in the long run, it is the ‘sun belt’ capitals of Perth and Brisbane that have the most potential for growth. Unlike Sydney, property values in both cities remain relatively low (in Perth, the median dwelling value is just $572,837). WA and Queensland also seem primed for above-average growth, with strong employment, major infrastructure projects and, in Queensland’s case, the buzz of the 2032 Olympics to plan and build for. We also expect Melbourne to eventually start performing well. The southern capital is relatively affordable compared with Sydney and is forecast to experience strong population growth over the next decade.
Another factor that points to potential price rises is a decided lack of housing stock. Rents are growing almost exponentially in many parts of the country. Now, with immigration returning to pre-pandemic levels, this is likely to become worse. Quite simply, we need more houses and apartments in virtually every market. Still, with funding and construction costs rising and quality sites difficult to come by, we’re seeing less rather than more development. ABS data shows total dwelling commencements fell 5.2% in the September 2022 quarter, placing further pressure on the housing market. This is something governments at all levels will need to address in the coming years.
It’s also worth mentioning that one market segment that never slowed down has been the prestige sector. Even through the worst of last year’s conditions, we saw market records being broken, with several sales over $30 million. What’s notable is that, with COVID’s emphasis on remote working and lifestyle, we’ve seen new prestige markets begin to appear. Some homes in Byron and Noosa now rival the most expensive homes in Sydney and Melbourne for prices and, in some parts of the Sunshine Coast and Gold Coast, property values doubled in just two years.