Australia’s housing market has been a topic of concern for potential homebuyers and investors alike. However, recent data suggests that the housing downturn that began in September 2022 is starting to ease off.
According to a recent report by CoreLogic, the drop in housing values has almost come to a standstill, with Sydney leading the charge with its housing values seeing their first month-on-month increase since January of the previous year.
The positive momentum has carried over to the first half of March 2023, with different growth rates observed in each of the five largest capital cities.
- Sydney’s housing values increased by 0.5 percent,
- Melbourne saw 0.2 increases,
- Perth saw 0.2 increases,
- Brisbane’s housing market remained relatively unchanged, and
- Adelaide experienced a slight decrease of 0.2 percent.
A lower than normal number of new listings hitting the market might be keeping house prices from plummeting further. Additionally, auction clearance rates have returned to around the decade average. Another factor that could be supporting the stronger market conditions is the surge in permanent and long-term migrants.
Although most of the housing demand from overseas migrants flows into the rental market, the tight vacancy rates might be pushing more people to buy homes rather than rent.
However, the uncertainty ahead suggests that the next few months will be crucial in determining if the housing market is experiencing a turning point or if we’re just in the eye of the storm. Interest rates might continue to rise, and we have yet to see the full impact of the aggressive rate hike tightening on households.
Economic conditions might also weaken in the coming months as households exhaust their savings, and the labor market becomes a bit more unstable.
Moreover, the fixed rate cliff has emerged as a significant potential risk to the housing market values and overall stability in 2023. In July and August of 2021, fixed rate interest rates hit record lows, and fixed-term home lending soared to a record 46 percent of new mortgage commitments.
Approximately 23 percent of all outstanding Mortgage Debt will be repriced at significantly higher rates in 2023 when their fixed term expires, resulting in the cliff.
Increased financial strain is expected from April of this year as more fixed rates shift to variable loans. Borrowers may face challenges in servicing their debt, especially with interest rates rising beyond the minimum serviceability buffers of three percentage points that the Australian Prudential regulator enforced at the time of these borrowers getting their loans. The next concern is if variable rate holders can cope with rising mortgage costs.
The housing market is not the only thing that has been under the microscope. The February 2022 labor force survey results were solid, showing a significant increase in jobs of 65,000. The participation rate also rose slightly, while the unemployment rate dropped to 3.5 percent.
The RBA will be keeping an eye on these two points of data as it approaches its April board meeting. Meanwhile, the March Westpac Melbourne Institute consumer sentiment index will remain steady at 78.5 percent, reflecting continued consumer pessimism.
Australia’s population growth reached 1.6 in the year to quarter 3 2022, which is the highest since 2017, driven by a record high net overseas migration of 106,000 for the quarter. The rapid return of the net overseas migration since mid-2022 has been confirmed by the ABS departures and arrivals data for January.
The European Central Bank raised its key European policy rate by 50 basis points, emphasizing that it has separate tools for both addressing inflation and potential risks to the financial system. The RBA will take these global factors into consideration for their April meeting when setting their cash rate target.
In conclusion:
The recent trends in Australia’s housing market suggest that the housing downturn is starting to ease off. However, potential homebuyers and investors should remain cautious as there are still uncertainties in the economy that could impact the market in the near future.
Factors such as rising interest rates, tightening lending standards, and the ongoing impact of the COVID-19 pandemic could potentially affect the market’s recovery.
Therefore, it is crucial for homebuyers and investors to conduct proper research and seek professional advice before making any significant financial decisions.
Overall, while the current outlook for the Australian housing market appears positive, it is important to remain vigilant and informed about any changes in the market.
