Will it really be boom to doom?

House prices and interest rates are the topics on almost everyone’s lips; the majority dying to know what will happen next.

Well? What’s the prediction?

There is no doubt that the pandemic changed many things in our lives; a lot of them unexpected. Among them was the rapid rise in house prices during a time when experts around the world were forecasting the opposite. 2021 saw the fastest increase in house prices recorded, defying even normal market expectations.

2022 was the year the RBA were mobilised into action prematurely (according to their previous affirmations that interest rates would remain stable until 2023/2024) and reluctantly started pushing interest rates in an upward direction from their all-time low. With six rate rises in as many months, this has had a profound effect on not only aspirational homeowners’ borrowing power but the confidence of the market at large. Consequently, house prices in the September quarter fell at the fastest rate on record.

This may be good news for some but for many mortgage holders it is a challenging and worrying time.

One of the strongest deterrents for prospective loan applicants is the fear of interest rates rising beyond their capacity to service the loan. And at this stage, the jury is out on the number of future rate rises and the level they will reach. Once the community has a bit more certainty around the stabilisation of rates then I believe the market will respond positively.

In the meantime however, whilst many homeowners anguish about the decreased equity in their property, prices would have to fall a further 21.3% to reach pre-pandemic levels. The drops in value since the boom are more than offset by the unexpected surges that were experienced during it, so in reality, despite news reports overwhelmingly conveying the negativity of the market dynamic at the moment, there is little reason for the majority of homeowners to panic at all.

Another factor in homeowners’ favour is that stock levels are seasonally low. This means that even though buyer numbers are lower than six months ago, the supply/demand ratio has remained relatively stable.

The Albanese Government dropped their first federal budget this week with housing policy featuring. Among them is the National Housing Accord which is an agreement signed between governments, investors and the construction sector aimed at addressing the supply and affordability of housing. The budget references a target within the accord to build one million new homes from 2024 over five years, with the bulk of this coming from the private sector. According to some, this figure is not ambitious enough but others believe the current construction environment may get in the way of achieving this figure.

Either way, how many of these homes will be dedicated to affordable housing and who will deliver them?

Although the government has taken a step in the right direction, their restraint on spending in this budget and the delayed start of their contribution to housing supply will not help home ownership and rental costs in the short term. The value will hopefully be realised in the longer term.

So is the market doomed? I don’t think so. Unless you purchased at the peak of the market, any price drops are potential, not tangible. Until you liquidate an asset, it is just that; an asset (or heaven forbid a liability).

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Published October 27, 2022

By Belinda Cassano