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The Westpac Housing Pulse for the first quarter of the year said the housing market is “delicately poised” after three months of “mostly treading water”.
The market is collectively holding its breath after the RBA cut rates on 18 February. Despite the long-awaited and much-needed easing, the response has been described as mixed.
Rate cuts have proven not to be the magic fix needed to turn stubborn issues around. Affordability and supply remain key concerns for borrowers.
The thoughts of Westpac mirrored ANZ-Roy Morgan data, which found the boost in consumer sentiment to be “short-lived” following the cuts.
Consumer sentiment dropped 2.1 points to 87.7 points in a report released yesterday (4 March). This is concerning considering the last time rates were cut in November 2020, confidence increased for around six weeks following the cut.
It’s clearly going to take more than a 25-bp cut to sure up confidence and turn the housing market around. With further cuts not guaranteed, trends could persist.
Despite this, Westpac reinforced its prediction of a further cutting of 75 bps throughout 2025, one 25-bp cut for each quarter.
While there is certainly some stubbornness after a few years of high interest rates and inflation, there are positive signs of a turnaround.
All of the capitals have seen housing price growth slow in the first quarter of the year. This has nudged the Time to Buy a Dwelling Index climb of 1.2 per cent, reaching 87.8 points.
While this is still above recent lows, Westpac said that it’s still “firmly in net pessimistic territory” and below the average of 120 points.
Over the next five years, three-quarters of the population have “property related intentions.” However, of those with plans, a third are likely to ‘pull the trigger’ over the coming year. This is higher than the quarter who said the same in 2024.
There is a reported ‘pent up demand’ for people looking to purchase property. The pandemic put many plans on hold and the subsequent economy troubles caused persisting strain.
Now, some are seeing a light at the end of the tunnel with the recent rate cut, meaning people are beginning to follow through with housing plans.
The predominant group of people feeling this optimism isn’t first home buyers, however. Those who already own property are planning to take advantage of the current market. Existing home owners looking to purchase a new home climbed 2.3 points to 10.6 per cent and those looking to purchase investment properties grew 3.3 points to 11.5 per cent – survey record highs.
In contrast, just 2.2 per cent of first home buyers are planning to follow through with plans of purchase in 2025, slightly above 2024’s low of 1.9 per cent.
Affordability, while made slightly easier through the rate cut, still remains a challenge for many. More cuts and some persistent trends are needed to create a more welcoming environment for first home buyers.
The average deposit needed for a first home buyer is $66,000, which takes 4.2 years of saving. This is $10,000 more and three to four months longer than the same period last year.
Meanwhile, 12 per cent expect to need more than $100,000 to buy and 19 per cent expect the saving process to take five years or more.
Rentvesting is continuing to be a popular option for home buyers, whereby they purchase an investment property and rent where they’d like to live. Currently, 10 per cent of Aussies are planning to take this path in the coming year, the highest proportion in three years.
Sixteen per cent of prospective first home buyers are planning to take this approach and 54 per cent are actively considering the option. NSW is a hotspot for this trend with 60 per cent of first home buyers considering rentvesting.
“For prospective first home buyers struggling to buy in the areas they would like to, this can offer a ‘smoother’ pathway to home ownership – one that allows them to manage the amount of financial risk they are taking on, gain exposure to the property market (and potential price appreciation), while still being able to live in their desired area,” said Westpac.
The rest of the year could ease the strain felt by prospective home buyers and help get them into the property market. Continued rate cuts will certainly encourage this, but whether or not we should expect them is up in the air.
[Related: Home values bounce back]
