What Will The Latest Rate Hike Mean For The Property Market?
In This Week's How's The Market | Edition 50
What Will The Latest Rate Hike Mean For The Property Market?
A Garden Fit For A King
Victorias Struggling Construction Industry
What Will The Latest Rate Hike Mean For The Property Market?
Before I give you my take on what I believe the June interest rate rise will mean for the Australian property market, I believe it’s important to contextualise the rate rise with a quick snapshot of some of the current market conditions:
Rising rates have already seen new construction loans falling to their lowest levels since 2008.
New building approvals have also fallen to their lowest levels since 2012.
General confidence in the construction industry is at an all-time low with higher renovation costs also deterring many buyers from taking on any fixer-uppers.
Rents have increased in most areas by over 10% in the last 12 months. Many first-home buyers are simply trying to get into the market now as they don’t want to pay the rent increases that have been requested by property managers/landlords, even if it is the market rate.
Net overseas migration for 2022 - 2023 is forecasted to increase by 400,000 people and then 315,000 in 2023 - 2024 which is well above the 235,000 long-term average drastically increasing demand in the marketplace.
New properties listed for sale are almost 25% lower than the 5-year average.
As you can see, supply in the form of newly built properties is not going to ease the supply burden anytime soon.
More people than ever are trying to get into the market to avoid the rental crisis which also doesn’t have an end in sight due to the ongoing increase in net overseas migration.
One effect that rising interest rates has proven to have on the market is that it is making vendors more hesitant to sell if they don’t need to. And whilst increasing holding costs will increase the number of vendors that can no longer afford to hold their property and will be forced to sell, it’s worth remembering that only approximately 36.8% of Australians have a mortgage on their property. Another approximate third of Australians own their homes without a mortgage and the remainder are renting.
This is why punishing the 36% of Australians with mortgages doesn’t affect the entire Australian economy and slow inflation as much as some would hope.
It is also the reason that I do not believe that this interest rate rise will be some sort of tipping point or negatively affect housing prices in the short term.
Of course, what will actually happen is anyone's guess as all the major economists have seemed to get everything wrong so far.
What The Agents Are Saying
Melbourne
Stock is exceptionally low and auction results are remaining strong simply due to limited supply. Many agents are telling us that some of the buyers they have been dealing with have been coming through their opens now for months, some even years.
With such limited options to choose from it can be very difficult to find the perfect family home or even the right first home for those making big purchases.
Many of the properties remaining on the market are dwellings that may be compromised in some capacity. E.g. they are positioned on a main road or train line, have an obscure block shape or require significant renovations.
Days on market for finished or renovated properties remain low.
Geelong
The market in Geelong for owner-occupied properties continues to improve in comparison to the beginning of the year, as well as buy and lease investment properties.
On the ground, over the past weekend, we saw an extremely limited number of people at open homes for properties that require renovation, suggesting to us that people are steering clear from the current state of the construction industry, whereas, newly built or recently renovated properties are continuing to perform strongly.
The rental market continues to flourish with vacancy rates remaining very low at under 1% in many areas around Geelong.
The Wow Factor!
7 Wood Street, Woodend, Vic 3442
It’s not often I see a property that has a garden that stands out as the obvious selling point of a home, however, this property has some magnificent gardens that certainly count as a Wow Factor!
Price Guide: $7.5m - $8.2m
In The Media
First RBA rate hike cost Victoria 2000 new home approvals, new ABS and HIA data reveals
Further evidence of the state of Victoria’s construction industry.
Final Thoughts
The RBAs most recent rate hike was expected by most after the latest inflation data showed an increase in inflation across the country.
Though many are now starting to question if using the blunt instrument that is interest rates which mostly affects the lower and middle class, is the right tool for curbing inflation.
I believe the property market will continue on its increasing trajectory, at least in the short term, until the pendulum of supply and demand starts to swing back towards a market with more stock and fewer buyers.
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.
