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Fallout from rising rates to be less dramatic than predicted: HTW

Rising interest rates are likely to slow down property markets but the fallout will be far less dramatic than most commentators predict, according to the latest Herron Todd White (HTW) Month in Review.

In the June report, CEO Gary Brinkworth said at this stage, households should be able to cope with higher mortgage costs.

“The current rate setting should be entirely manageable by most households with 2.5 to 3 per cent rate buffers already factored in during the loan approval process,” Mr Brinkworth said.

“Add in the reported uptick in household savings since early 2020, plus those who paid down extra on their loans in recent years, and most families will have adequate financial cushioning to assist in the short term.

“The larger concern is around future rate rises – specifically, we want to know how long, how often and how high.”

Mr Brinkworth said rate rises will impact different segments of the market.

“I’m convinced interest rate increases will hit different sectors in different ways, but the general fallout will be less dramatic than has been posited by some commentators,” he said.

“For example, mature property owners with lending in place will, in general, have more than enough buffer to ride out the rises.

“On the flipside younger borrowers are faced with a dilemma.

“While real estate prices are softening, they’ll also need to deal with losing a larger chunk of their relatively low income to loan repayments.”

HTW Executive Director, Valuation & Advisory, Drew Hendrey, said property markets may well ride out the rest of 2022 holding firm.

“The real test of resilience to me will be in the first half of 2023 when a huge number of fixed-rate mortgages become variable,” Mr Hendrey said.

“My overall feeling is that 2022 will be a year of price resettlement and stabilisation across most centres.

“The conversations I’m having with other property professionals aren’t nearly as dire as the media stories surrounding the market slowdown.”

Sydney

HTW Director Shaun Thomas said listings have increased across the board and auction clearance rates have been falling since January across Sydney.

“The total listings across Sydney have been increasing on a month to month basis,” Mr Thomas said.

“This increase in supply has given buyers more options and local agents are noting that less desirable properties are being hit hardest.

“There are predictions that this is the beginning of a decline in property prices in Sydney, with many leading economists predicting a 10 to 15 per cent decline in the Sydney median price over that time.”

Melbourne

HTW Director Perron King said Melbourne is starting to witness a softening of the market after a strong end to 2021.

“Demand for freehold properties in good locations still rests at a healthy level, however the RBA’s decision to increase rates coupled with the completion of many government stimulus programs has led to a commentary that the market may have reached its peak,” Mr King said.

“Due to the majority of people spending an increased amount of time at their homes, the more spacious properties with study areas and balconies have been the most sought after, achieving the strongest prices.”

Brisbane

HTW Director David Notley said Brisbane has arguably been the strongest capital city market over the course of the pandemic and remains steady.

“The Brisbane house market continues to see strong demand although anecdotal discussion suggests listings are up a little while inspection numbers are down,” Mr Notley said.

“The consensus is there are less offers being made on each property, but certainly enough to achieve a good sale price if the vendor is open to meeting the market.

“Inner suburbs more generally have slowed very slightly since the start of the year in terms of activity.

“The unit space is doing well too. Activity remains good with price growth across a range of price points.

“Many of the selling and buying agents we talk to say there are still purchasers keen to buy in Brisbane, but there’s less desperation in the market.”

Adelaide

HTW Director Nick Smerdon said the South Australian property market has gone from strength to strength throughout the first half of 2022.

“March quarter data released by the State Government indicates that the metropolitan median sale price has reached a historical high of $650,000 which is a 25 per cent increase year-on-year,” Mr Smerdon said.

“The strong market activity isn’t isolated to the metropolitan area, with regional South Australia also reaping the benefits. 

“The non-metropolitan (major towns) median sale price has risen to $325,000 which is a 15.3 per cent increase year-on-year.

“Price points have not been discriminatory with growth across the board from the affordable to the prestige markets.”

Perth

HTW Director Chris Hinchliffe said the Western Australian property market has performed strongly throughout the start of the year, carrying on from an impressive 2021.

“Demand is still strong across the board and values generally continue to rise as we continue to experience supply issues,” Mr Hinchliffe said.

“Our valuers are noting that there is good growth in secondary locations which are playing catch up to the activity experienced in more premium areas in 2021. 

“The Perth apartment market has continued the resurgence we saw throughout 2021 into 2022, however at what appears to be a steadier rate. 

“Across 2021, the median price of units in the Perth metro region rose from $380,000 to $415,000, largely on the back of investment activity and affordability levels of traditional housing.”

Darwin 

HTW Valuer Jeremy Callan said coming off a very strong 2021, the greater Darwin market has continued to perform well overall in 2022.

“We have seen a cooling in value growth in some sectors of the market, however sales volumes continue to grow with demand across all sectors strong,” Mr Callan said.

“Looking back on the past six months and with a look into the next six months, the greater Darwin market outlook is optimistic. 

“What is certain is that the remainder of 2022 is unclear as to which direction the homeowner market will go.”

Canberra

HTW Assistant Property Valuer Nicole Claughton said there is still limited stock coming onto the market and whilst significantly lower prices are yet to be observed, the auction clearance rates are lower each week 

“Agents are reporting a smaller buyer pool and much more caution in the market,” Ms Claughton said.

“With the addition of the Federal Election and with housing affordability and cost of living key areas of concern, any policy changes or stimuli that will affect certain price-points or sectors of the property market will be monitored carefully.”

Hobart

HTW Residential Manager Mark Davies said it didn’t really matter what type of property you were looking for up to the halfway mark of the calendar year, with demand extremely high and supply low. 

“Multiple offers were presented to vendors and on many occasions, purchasers waived their right to a building inspection just to secure a property,” Mr Davies said.

“The market seems to have cooled slightly with open homes recording fewer prospective purchasers attending and days on market extending marginally.

“Prices in all property types are still strong, however gone are the days when the vendor is offered hundreds of thousands of dollars over the asking price.”

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Rowan Crosby

Rowan Crosby is a freelance journalist specialising in finance and real estate.