After six months of property prices rising in the face of high-interest rates, the ongoing recovery still faces “significant headwinds” in the second half of 2023 according to the latest Herron Todd White (HTW) Month in Review.
In the July report, HTW National Director of Residential Ben Esau said even though the Reserve Bank of Australia (RBA) has shown a willingness to slow down its rate hikes, the impact of previous rises are yet to fully play out.
“The lag effect of interest rate increases may not just be the time taken for the new rates to be implemented by lenders, but also how long stressed homeowners can stay liquid after the shock of this rate rise cycle,” Mr Esau said.
“This may also escalate if we see any significant increases in unemployment over the next six to twelve months.
“The next phase of our post-pandemic economy has created a precarious remainder of 2023 for the residential property market.”
Mr Esau said signs of stress in mortgage borrowers are being closely watched, including via reduced savings and spending, increasing arrears and through increased property listings.
“Throughout the second half of the year, new listings may become a key metric to watch as they’re currently below long-term averages,” he said.
“If we see increases – particularly in certain geographic or market sectors – this could lead to sharper declines in values.
“While the tight rental market may help absorb listings, buyers will continue to see their purchasing power diminish, with higher rates impacting serviceability requirements.”
He said rental price increases are putting pressure on tenants.
“Calls for greater tenant protections are likely to amplify and rising interest rates will continue to put pressure on mortgaged landlords to pass these costs onto tenants,” Mr Esau said.
According to Mr Esau, increasing supply initiatives such as affordable housing projects and converting commercial buildings into residential will not provide any immediate relief.
“As policy makers continue to look for short-term solutions to the rental shortage, we expect to see more focus on short-stay rentals and vacant investment properties… particularly within metro localities,” he said.
“Policy changes in these areas would seek to disincentivise short-term usage or vacancies and aim to push this stock back into the long-term rental market.
“Whilst these types of initiatives in isolation won’t solve the problem, they may provide opportunities to demonstrate progress against a backdrop of growing public concern.”
“That said, they may well disincentivise investors away from residential property too – not something we want in these tight markets.”
HTW Director Shaun Thomas said across Sydney, many people believe the bottom of the downturn appears to have been reached in the first two months of the year.
“In the three months to the end of May, the median price growth across Sydney could almost be described as booming, with houses up five per cent and units 3.3 per cent over that quarter,” Mr Thomas said.
“There is no doubt that demand has increased as those holding out for the bottom of the market now have an increasing fear of missing out on it.”
He said it is hard to imagine that prices can continue to recover at the pace they did last quarter, particularly if the economy pushes closer to a recession later this year.
Mr Thomas said rental pressure across the state is likely to remain in place for the time being.
“With immigration rates to be at above average levels over the next three years and new approvals for residential construction at a 10-year low, it’s hard to see supply keeping up with demand in the short to medium term,” he said.
HTW Director Perron King said the property market in Melbourne’s CBD and inner suburbs has seen a decline in prices since the COVID-19 pandemic property spike.
“The current year has reached its halfway point and the market is showing signs of stabilising,” Mr King said.
“Interest rate increases combined with the high cost of living have negatively impacted the market but despite this, the demand for properties in Melbourne is still evident.
“For those looking to own their own home, the outer suburbs of Melbourne have become a viable option, as many owners are now able to work from home, negating the need to live close to the Melbourne CBD.”
He said despite the Reserve Bank’s decision to increase interest rates for a 12th time in June, they’ve observed an overall increase in home prices across metro Melbourne.
“Throughout the east, we have seen inconsistent performance across the board, with some suburbs noticeably impacted by rising mortgage stress and cost of living pressures, whilst others remain seemingly unfazed,” he said.
“Many parts of Melbourne’s western suburbs are still seeing increases whereas some areas in the west are not.”
HTW Director David Notley said Brisbane has lived up to its reputation of being among the most forgiving of capital cities when it comes to property price movements.
“The initial signals of price softening in response to the first interest rate increase in May 2022 became more pronounced as the year progressed,” he said.
“Less property traded and sellers who required a sale needed to get very realistic about their prices.
“However, when rates were put on hold in April 2023, confidence seeped back into our market.”
Mr Notley said units are attracting strong interest, particularly from young buyers.
“This cohort is driven by affordability and lifestyle, and many need to escape the rental crisis,” he said.
While agents are reporting very low stock levels and some properties in good locations have been getting 50-plus groups through their open homes.
HTW Valuer, Nick Smerdon said while the Adelaide market has remained stable results have been mixed across the city.
“Many of the affordable outer metropolitan regions have achieved year-on-year price growth whilst the inner metropolitan regions representing the middle and upper price points of the market have seen reductions,” Mr Smerdon said.
He said a number of suburbs at the affordable end have seen incredibly strong price growth, while results in middle ring suburbs have been mixed.
“Agents are reporting reduced numbers through opens whilst appropriate pricing is becoming a factor as vendors grapple with the prospects of a stabilising market,” he said.
HTW Director, Chris Hinchliffe said Perth prices have held steady, being driven by incredibly tight levels of supply.
“We started 2023 with significant concerns about the dwindling level of houses listed for sale and the slow rate that they were coming onto the market, and unfortunately this issue just keeps worsening,” Mr Hinchliffe said.
“The cost of housing is reaching crisis levels for some sections of the market and we’re quite concerned that this hasn’t been front page news more often.
“Government solutions to date have simply not been up to the task. It’s a tale of the haves and the have nots unfortunately and the gap is widening rapidly.”
HTW Valuer, Cameron McDonnel said prices have held up well so far, but the last few rate hikes have started to hurt the market.
“Across most sections of the market, minor year on year reductions of values have been evident and there has been an easing in total sales volumes with a marked reduction in the number of properties on the market,” Mr McDonnel said.
“The median value for a dwelling in Darwin now sits at $560,000.
“This is down 4.4 per cent from 2022 and it should be noted that home prices are still regarded as relatively affordable compared to other capital cities.
He said there has been a push for high-quality properties which have been well-renovated and demand is remaining firm, while demand for secondary quality stock is easing.
“After the spike in activity in the latter half of 2021, transaction numbers seem to be dropping back to the levels that have been prevalent since the beginning of the COVID pandemic in early 2020,” he said.
HTW Assistant Valuer Michael Qu said the Canberra market was flat April, putting an end to the price falls precipitated by the Reserve Bank’s war on inflation.
“House prices in the national capital are set to grow between two and four per cent according to Domain’s forecast,” Mr Qu said.
“Despite this, the median price will still be lower than the $1.17 million peak of June 2022 after the largest peak-to-trough fall of all the capital cities.
“Unit prices are likely to see growth of between one and two per cent.”
HTW Valuer Mark Davies said conditions in Hobart have changed dramatically this year.
He said that despite prices officially rebounding according to CoreLogic, there is no evidence of that occurring out in the field.
“Properties are sitting on the market for much longer with price corrections inevitable,” Mr Davies said.
“Gone are the days when agents would offer properties for sale at offers over a certain amount and achieve 20 per cent more than suggested.
“In fact, if a property is listed for sale in that fashion, we as valuers are finding that the sale price is very close to the price guide and more often than not, is slightly below.”
He said “for rent” signs are popping up all over the place and this may indicate that the rental market has peaked.