Walking a fine line?

Home buyers are walking the proverbial tightrope at the moment.

But which side of the rope will they fall, if any?

It’s no secret the market has kept us guessing this year after an extraordinary period of unexpected events. This spring has brought with it even more enigmatic behaviour. The traditional real estate selling season got off to a very slow start with both buyers and sellers re-evaluating their finances and motivations to move. After six – and now seven – interest rate rises in as many months, current and prospective mortgage holders have been trying to cushion the blows cast upon them by Australia’s central bank.

I have spoken a lot about the supply/demand equation and how it affects the market. Last year, when stock levels were extremely low due to COVID-19 and lockdowns, we had strong buyer demand due to the record-low interest rates; the perfect combination to drive prices north. This year, as inflation has edged higher, the RBA has reviewed its anticipated stability of interest rates until 2023/2024 and, as we have seen, tried to combat inflation by incrementally increasing them. This has inevitably affected borrowing power and quelled demand. At the same time, sellers have reviewed their positions and stock levels for this time of the year have fallen short of where they should be. This has meant that the supply/demand ratio has remained relatively balanced and is the reason that market values have declined in a somewhat orderly fashion.

There has been a slight uptick in property numbers hitting the market since mid-October, with hopefuls taking the plunge to be done and dusted by Christmas. At the same time there has been an increased number of buyers anticipating further falls in prices and waiting to pick the bottom of the market, letting their fear of paying too much override their decisions. This has meant supply and demand have kept a comparatively steady pace.

Having said that, Sydney’s auction clearance rate last weekend was the highest recorded since late March. This would normally signal a burgeoning market but because of low volumes it is tempered to a degree compared to other years. The upward shift in the clearance rates is mainly attributable to vendors appreciating that in most cases they will not achieve the potential sale price of 12 months ago and instead have calibrated their expectations to fall closer in line with today’s market.

The RBA hasn’t ruled out further interest rate rises and most analysts have factored in a couple more in the shorter term. Whilst there are a lot of borrowers who fixed their mortgage rates and haven’t been affected by this year’s changes, they are more than aware that their time of reckoning is looming and are just as cautious about overcommitting.

No buyer wants to pay too much and no seller wants to sell for too little but waiting for a market to peak or trough is an educated guess at best. In the meantime life goes on and as we can see there are still people making lifestyle decisions every day, whether by choice or not.