What’s next? Rise or fall?

To say the past few years have been extraordinary would be an understatement – and the real estate market has been no different.

But in what way?

Let’s start with the spring selling season. September traditionally brings with it a renewed enthusiasm for the outdoors and revitalised gardens after the winter hiatus. In fact, for the decade prior to the pandemic, this period attracted an uplift of 21% in new listings nationally.

However, 2022 has deviated from the norm. As we said goodbye to spring and heralded the advent of summer, it was evident that the numbers were just not there, with freshly listed properties falling for the first time in 12 years.

But why?

At the first sniff of interest rate rises, prices began their decline to the tune of -7% from April through to the end of November. This is the steepest decline in home values on record and represents an equivalent fall of around $53,000 in the national median home value. Consequently, vendors began to defer their plans to sell and selling conditions changed in favour of buyers.

Other tell-tale signs of a so-called “buyers’ market” are increasing days on market (the time it takes for a property to sell once listed) and vendor discounting (the difference between the original listing price and the sale price). In the three months to November 2021, the median amount of time a listing was on the market before selling was a mere 20 days. This has increased 35 days in the same period of 2022. Similarly, vendor discounts from the initial listing price have also deepened, from -2.9% in the three months to November 2021, to -4.3% in the spring of 2022.

The latest interest rate hike on Tuesday is the eighth in a row this year and so far there has been little talk of mortgage holders struggling to meet repayments. Certainly, those that have held their mortgage since before the pandemic will, for the most part, be in a better position than those that borrowed in the last couple of years, particularly those that maximised their debt level to meet the rapidly increasing property prices.

So as long as mortgage holders can afford their repayments, and do not need to move, sellers may be less and less motivated to put their property on the market at the moment.

Where to from here?

The policy response amid the pandemic from governments and the RBA has produced extraordinary fluctuations across a range of economic activity, including the housing market. However, there are still some indicators it is too early for a pause in the rate tightening cycle, with the September quarter ABS business indicators data showing a growth rate not seen since 2007. New mortgage application numbers are down, with the majority of applications being for refinancing of existing loans.

A lift in the cash rate of 300 basis points is noteworthy. APRA introduced a 300 basis point buffer on the home loan serviceability assessment last year which would have all but been negated by now, leaving those borrowers susceptible to any future rate increases. Further to this, many mortgagors will be coming off fixed-rate loans next year and will no doubt feel the full impact of the costly rate changes.

Distressed sales will put additional downward pressure on prices and could result in a short-term spike in listings. The hope here will be that these properties land in the hands of owner-occupiers rather than investors to help mitigate a currently worsening housing crisis.

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Published December 8, 2022

By Belinda Cassano