Australian property markets have passed their “peak fear” phase and are expected to bottom out in the new year, according to an expert.
Co-founder of buyer’s agency network, BuyersBuyers, Pete Wargent, said that despite property prices declining, the worst could be behind us.
“The doomsday scenarios favoured by some media outlets are looking increasingly unlikely,” Mr Wargent said.
“We’ve passed peak fear.”
Mr Wargent said he expects the negativity surrounding property prices to slowly start to fade.
“The downturn has been driven by a combination of lower borrowing capacity and deeply negative sentiment, but we can expect to see some of the gloomier headlines tailing off now, which leads us to believe that ‘peak fear’ has now passed for this market cycle,” he said.
According to Mr Wargent, higher interest rates will continue to weigh on buyers, but that will be offset by a rising population.
“There’s no question that the series of interest rate hikes knocked the stuffing out of the housing market earlier in 2022,” he said.
“Naturally, we do expect lower borrowing capacity to impact some buyer cohorts, including first homebuyers, some investors, and particularly upgraders who are really stretching themselves to buy the best home they can.
“With the borders open and permanent migration ramping up again in tandem with the return of international students and other temporary visa holders, we expect to see the resident population of Australia increase by 1 million over the next two to three years.
“And this at a time when the statistics are threatening to show builders could be going insolvent at the fastest pace on record, hampering the supply response.”
Mr Wargent said improved auction clearance rates indicate that the market is more balanced, especially when it comes to high-quality properties in popular areas.
“There hasn’t been a tightening cycle of this pace and magnitude since 1994 – when the cash rate target went from 4.75 per cent to 7.5 per cent between July and December – so most young borrowers have never seen anything like this before, and it had a very significant impact on consumer confidence,” he said.
“However, the Reserve Bank only hiking 25 basis points this month has had something of a soothing impact on buyer confidence – although there will likely be further hikes to come, it does add to a general feeling that we are getting closer to the terminal cash rate target for this cycle”.
“After months of gloomy headlines, eventually consumers tend to tire of hearing the same old messages and move on, particularly in the absence of a major property price correction, and a lot of buyers are doing just that now.
“At some point, you just have to choose to get into the market.”
BuyersBuyers CEO Doron Peleg said that capital city prices are now approximately 6 per cent below their peak, according to CoreLogic’s home value index, and the index would still show some further declines to come.
Mr Peleg said properties in popular areas are continuing to see strong demand, while the overall market has become more balanced between buyers and sellers.
“With Australia experiencing full employment, many prospective vendors can wait out the downturn, given most owners have built up significant equity, have substantial cash buffers, and given that rents are rising by up to 20 per cent per annum,” Mr Peleg said.
“Property market indices tend to lag, because there’s always going to be a delay between offers being made and property sales being settled, recorded, and reported.
“So price indices will likely show further declines for some time to come yet.”
“However, the peak of the ‘fear’ phase of the cycle now appears to have passed, and price declines are likely to become less steep from here, before being confirmed as bottoming out in the new year.”
Mr Peleg said CoreLogic reported the highest preliminary auction clearance rate since May this weekend, driven by improving buyer sentiment in Melbourne and Adelaide, as well as less stock flowing on the market.
“Brisbane’s house prices are seeing some of the speculative excess wiped away this year, but we’ve also seen unit and townhouse prices rising in many cases,” he said.
“There are still some areas of weakness in Sydney, but stamp duty being scrapped for first homebuyers up to the $1.5 million price point in the new year will likely see a recovery driven from the bottom of the market up.”