Australian home buyers ‘back in driver’s seat’

If positivity is relative to perspective then a reminder of the long-term nature of housing was welcome reprieve for loan seekers and property investors, judging from a recent CoreLogic assessment of Australia’s current and predicted economic outlook.

While CoreLogic senior researcher Tim Lawless was quick to highlight that a big part of the forecasting occurring is dependent on interest rates, his data-based webinar analysis eruditely captured the current market — and the opportunities.

“I think unless you’ve been living under a rock somewhere, you know the market’s in somewhat of a downturn,” Mr Lawless said.

“I think it’s really clear that we’re already seeing the rate of growth was slowing across the housing market well before interest rates start to rise.

However, Mr Lawless said that when you start to look at markets like Sydney and Melbourne — although housing values are still falling, particularly in Sydney quite rapidly — the rate of decline is no longer accelerating.

“So what I think what we’ve seen in the marketplace is this initial shock factor of interest rates arising from emergency lows, which was the catalyst for quite a sharp reduction in the rate of growth," he said. "Now we’re starting to see the market much more priced in future interest rate hikes, and no longer see an acceleration in the downturn — at least in Sydney and Melbourne.

“I wouldn’t be surprised if Brisbane starts to level out around this sort of 1.9 to 2 per cent month on month fall, as well.”

The opportunities for investors and new home buyers

Amid a plethora of “negative, generally pessimistic” property market headlines, Mr Lawless said such were, “…from a property owners’ and the sellers’ side bias,” but that, “… [the] housing downturn is probably quite a welcomed outcome [for] things like improving affordability.”

“Buyers are back in the driver’s seat. We’ve got higher yields for investors coming through because rental markets are so strong and not to forget that property ownership is generally a long-term game — even for investors; ‘flipping’ [residential property] is such a small component of the market,” he explained.

“Affordability has really been one of the factors that was contributing to slower price growth in the marketplace well before housing interest rates started to rise, particularly in markets like Sydney and Melbourne.”

Aside from other factors around higher fixed-rate mortgage lending, the change from APRA, lower [consumer] sentiment, generally speaking Mr Lawless said an improvement in housing affordability from a “dwelling value to income ratio perspective” was moving through record highs — and by the middle of this year it is now starting to come down.

“That entry hurdle to the marketplace is becoming a little bit less insurmountable across the cities that have become quite unaffordable,” he explained.

“So even though on the flip side to improved affordability you’ve got increased levels of serviceability and an impact of borrowing capacity, but I think we will find as we see prices falling… more first homebuyers and more investors positioning themselves in the marketplace, taking advantage of better buying conditions and the lower entry points in the market.”

Housing stock levels are a key focus

Even with a surge in new market listings, Mr Lawless underlined that, “stock levels are rising simply because the rate of absorption has slowed down.”

“There’s less buyers out there, which means stock levels are accumulating nationally; stock levels are getting to be well above what they were a year ago and roughly in line with the five-year average,” he summarised.

“That means homes are taking longer to sell.

“Clearance rates have levelled out around that low 60 per cent range… which is an indication vendors are becoming much more willing to meet the market, rather than the market starting to improve.

“Absolutely, buyers are back in the driver’s seat! There are still a few markets where stock levels remain extraordinarily low.”

The effect trickles down regionally

In terms of interest rate hikes’ effect elsewhere, Mr Lawless said: “Once you get beyond these five major capital cities, you can see this downward momentum is very much broad based now, [but] there’s one [capital] city, Darwin, where we’re not really seeing too much evidence of a loss of momentum.”

Additionally, he said regional markets around Australia have been much stronger than the capital cities, where the housing “growth conditions” were much more resilient through the early part of COVID.

“This was the beginning of that real demographic shift where a lot more people were moving from the capitalist towards regional markets and fewer people moving from the regions back to the capital cities,” he stated.

“There’s some early evidence that demographic shift is also losing some momentum.”

“Clearly regional markets are slowing down, as well,” noting that some of the agricultural markets around the NSW Riverina, the more mining-intensive areas around north-west Western Australia, and tourism-centric areas, for example, are still experiencing, “…housing prices either rising or at least leveling out rather than falling.”

[Related: Aussie August housing values continued slide]