Interest Rate Hike Paused! - House Prices Set To Rise 7% Across Capital Cities This Year?
In This Week's How's The Market | Edition 41
Interest Rate Hike Paused! - House Prices Set To Rise 7% Across Capital Cities This Year?
Regional Vs Metro Activity
Take Me To Church!
Interest Rate Hike Paused! - House Prices Set To Rise 7% Across Capital Cities This Year?
Yesterday the Reserve Bank of Australia paused the cash rate at 3.6% after 10 consecutive interest rate rises.
One renowned economist, that always seems to get it right, Louis Christopher, has come out and said that this pause “significantly increases the probabilities of our base case scenario playing out. That is the housing market will now recover with prices rising this year somewhere between 3% to 7%, with Sydney driving the recovery.”
Christopher published in his Boom & Bust report in November last year four possible scenarios that could take place in the Australian economy and the effects he predicted they would have on house prices across the country.
The RBA pausing cash rates below 4% eliminates his worst-case scenario and provided evidence towards his base-case scenario that predicts price growth across the capitals.
He has stated four reasons why the housing market will recover including:
Soaring underlying demand driven by rapid migration growth
In order for house prices to crash, there needs to be an oversupply. We currently have the opposite.
In the recent high inflation era of the 1970s – housing prices exploded with prices in Sydney quadrupling in the decade.
Many underestimated the impact of stamp duty reform for first-homebuyers in NSW which massively increased competition and will be why Sydney will lead the recovery.
There are a few other reasons why I believe housing prices are set to increase over the remainder of the year:
As Porter Davis has just gone into liquidation, that is a further 1700 homes that may not be finished which will mean more people need to rent in the short term.
New build contracts and confidence is at an all time low. As many house and land packages used to be sold to first-home buyers. Many of these first-home buyers are now choosing to look at established homes as they don’t want to risk their builder going into liquidation. This will drive competition even further on established properties.
The recent changes in rental policy (especially in Victoria) are making it more difficult and more expensive to hold and own rental properties. For this reason, as well as the higher interest rates, many investors are now selling their rental properties. This will continue for the remainder of this year, especially as investors come off fixed interest rates and will further reduce supply in the rental market, which will in turn drive up demand in the housing market.
If we see house prices rise in the capital city markets for two consecutive months in a row, sentiment may quickly change and draw many new buyers into the marketplace. We are already seeing an improvement in sentiment on the ground.
What The Agents Are Saying
Geelong Region
$600k - $800k = The Dead Zone
Many agents have stated that despite low listings, they are struggling to move stock within the $600k - $800k price point as the demographic of people that would usually buy in this range has been affected the most by interest rate rises.
One agency said that their listings are currently at a 5-year low, but the time it takes them to sell stock is now also 80% longer than usual.
Why are properties taking longer to sell?
Many agents believe interest rates and finance play a big part, however, a further reason is that many of the properties coming onto the market at the moment are low-quality investor stock.
As interest rates rise, investment properties are getting harder to hold. Plus as Victoria is introducing strict new laws regarding the condition of investment properties, many investors are selling their properties rather than spending large amounts of money fixing them up.
This has resulted in a large amount of lower-quality properties coming onto the market at once. And as investors are not there to pick these properties up and first-home buyers don’t want (or can’t afford) to have to renovate, there is a large pile of properties either not selling or selling well below range out of desperation.
Metro & South East
As far fewer investment properties are available in this market under the $700k - $800k range, we are seeing nearly the opposite movement in the market here. Agents have told me that they are getting 20+ groups through on the first open of a decent unit in this region, with 10+ on opens after that.
At auctions, we still see competitive bidding from first-home buyers with prices far above the range.
As the high-quality stock is very low, these properties are still fetching high prices.
The Wow Factor!
Take me to church!
275-279 Latrobe Terrace, Geelong, Vic 3220
It’s not often that you see a traditional blue-stone church for sale on 2600 m2 near the heart of Geelong!
In The Media
Why Sydney property prices could be about to rise again
The media is now already making predictions that Sydney’s property prices could be set to rise with another economist predicting many buyers on the sideline may now jump back into the marketplace.
I find it interesting how quickly media outlets can change their tune.
Final Thoughts
Due to the RBA’s pause on the cash rate, many buyers waiting on the sidelines may now jump back into the marketplace.
Combined with low confidence in the construction industry driving demand to established homes, high amounts of investors selling rental properties driving tenants into the purchasing market and international migration further making the market more competitive, 2023 may still see a swing and change in the property market yet.
Thanks for reading this far!
We value feedback and if you have any suggestions on what you would like covered in the future please email me at tristan@tomii.com.au
Happy Buying!
Note: This is my opinion, please seek your own expert advice when making decisions.
