Homely mid-spring market update: Are property prices going to drop further?

Usually, spring is prime selling season in Australian real estate. Last year, Australian property markets enjoyed a strong spring season with prices at all-time highs and buyer competition through the roof. But this year, it’s been a little wobbly.

So what is going on in property right now? And what does it mean for buyers, sellers and renters?

We dive into the data with experts across the country along with advice for buyers and sellers as we head into the end of the year.

Market overview

Increased interest rates have hit investors the hardest. Meanwhile, buyers regain confidence as steep cash rate increases start to level out.

What we know: 

• New housing finance secured in August totalled $27.4billion – down 3.4% on the previous month.
• Investor finance fell 4.8% in August while owner-occupier lending fell 2.7% in that month

• RBA announced just a 25 basis point cash rate increase on October 4
• RBA Board flags this is not the end of the increases as inflation stands at 7.3%

*Source: Corelogic Monthly Housing Chart Pack

Property economist and founder at BuyersBuyers, Pete Wargent, says, “As interest rates have increased through 2022, buyer sentiment has been considerably lower. However, the Reserve Bank lifting the cash rate target by ‘only’ 25 basis points at the last meeting signals a prospect that the peak of the interest rate cycle may be drawing a little closer.”

He believes we are already seeing a positive shift in the market. “There was an immediate positive impact on buyer optimism, and enquiries have already picked up since the RBA’s decision on October 4.”

What does this mean? 

While total new financing is down, the decrease was gentler than the previous month. This signals the beginning of a positive turn in buyer sentiment.

The drop in investor finance has taken the investor percentage of total financing down below the decade average of 34.7%.The ‘investor portion’ of all new property financing across states tells us that investors have been the most sensitive to recent interest rate hikes. This reflects ongoing caution and slowing momentum for property investment across the country. 

The combined capital cities’ clearance rate trended higher through September, averaging 59.8% in the five weeks to September 25th. While this is up from the average recorded over August (56.8%), it is still down from the 74.3% average clearance rates in the equivalent period of 2021. 

The downward trend on house prices is slowing and auction clearance rates are pulling back up.

What we know: 

• National home values fell by 4.1% in the three months to September representing the biggest quarterly decline in home values since the 1980s
• Capital cities’ monthly pace of decline slowed through September from -1.6% in August to -1.4%.
• Combined capital cities’ clearance rate trended higher through September averaging 59.8% – up from 56.8% in August.
• The above clearance rates have cracked 60% through October – a slow but steady increase.

*Source: Corelogic Monthly Housing Chart Pack

What does this mean?

Good clearance rates are a sign of a healthy, competitive market. When the market is competitive, more houses go to auction to deliver the best price for the vendor. Previous low clearance rates signalled a lack of confidence in the market, but this slowing of price decline and slow but steady growth in clearance rates is the sign we needed that things are ticking up.

Homeowners are reluctant to release property onto the market without the promise of high sale prices. Vendors are being rewarded as a result.

What we know: 

• CoreLogic reported 34,368 new sale listings nationally between Sept 4 – Oct 2
• While up on the previous month, the listing volume is 14.3% lower than the previous five-year average 
• Sales estimates this year to date were 11.4% lower than the same period of 2021
• Stock levels are depleting – with more than one sale for each new property listed through September

*Source: Corelogic Monthly Housing Chart Pack

Pete comments, “As we head into the spring selling season we’d normally expect to see a ramp-up in stock listings. Stock is not nearly as tight as last year, but listings are about 15 per cent lower than might be considered normal for this time of year.” 

What does this mean? 

Total listings are starting to trend down as a result of public holidays, limited construction and the impact of interest rates on the market.  It’s now a classic situation of supply and demand: when there is less stock, demand remains high. This is one of the reasons the market continues to remain steady, and even buoyant in some areas.

Vendor discounting increases, which suggests markets are turning in favour of the buyer.

What we know: 

• Vendor discounting saw its lowest point in the three months to November 2021 at -2.9%
• In the three months to September this year, the national median vendor discount increased to -4.2% 

*Source: Corelogic Monthly Housing Chart Pack

What does this mean?

For sellers, it’s important to be realistic and ensure your agent is promoting your property as widely as possible and giving it the best chance to be seen by the most buyers. As the market steadies with slightly lower prices and less aggressive sale price growth, the higher vendor discounting median suggests sellers in the market are genuine and  are willing to accept solid, uncomplicated offers that will get the deal done, even if they don’t break suburb records.

Rental markets are tighter than ever across the country

What we know: 

• Annual growth in house rents fell 9.4% in the 12 months to September
• Meanwhile, unit rent values have increased 11.8% over the last year
• Annual rental growth across national dwellings holds steady at 10%

*Source: Corelogic Monthly Housing Chart Pack

Pete says, “With rental vacancy rates already at record lows nationally, the market will likely bottom out when interest rates stop increasing, which may prove to be in the first half of 2023.”

Additionally, migration to Australia is increasing and so is the number of people moving back to the city, a change to the last two years. 

What does this mean?

It’s becoming more difficult to find rentals and even more expensive. As expected in an environment where interest rates rise, these rate changes are passed down to tenants in the form of rent rises. For those seeking rentals, it’s important to set up property alerts to be notified as soon as homes hit the market, and be as prepared as possible for your application ahead of time. 

What’s happening in each state right now?

Victoria

Matt Scafidi, CEO of Abode Advocacy Group

Current market:

Matt says that in the Victoria market, “We are still seeing low stock levels still and agents are supporting this outlook. Buyer demand, however, is increasing and we have witnessed an increase in buying clients wanting assistance over the last few weeks”

For the rest of spring and summer selling season: 

Matt explains, “We are expecting to see vendors gain more confidence as clearance rates continue to increase – this should see a more balanced stock offering, starting to match buyer demand.”

Matt’s advice to buyers and sellers this season: 

Buyers need to be ready to purchase when they see the right property which means having finance ready and being able to make their offer an unconditional one – to gain the advantage against their competitors.

Sellers, take the time to present your home in its best possible light and get independent advice on small improvements and maintenance that can make your home feel effortless when it hits the market. Signals of work put many ‘already cautious’ buyers off putting their maximum offer forward.

New South Wales

Andrew McCulloch, CEO NSW Ray White

Current market:

Andrew says, “This isn’t our typical spring. Firstly, we have interest rate rises driving a ‘cooling off’ of prices up to the beginning of spring. This was a shock for many sellers – especially after last year where rates dropped and prices soared.”

He continues, “Typically we see a rush of stock and buyers in spring. This year, we just haven’t seen the rush of stock. We are, however, seeing the same rush of buyers – as a result, clearance rates have remained healthy and it has also, in my opinion, stopped the haemorrhaging of price dropping.” 

“While it’s been a tricky time, what we’re starting to see is positive – stabilised prices and plenty of competition,” Andrew concludes. 

For the rest of spring and summer selling season: 

Andrew states, “I think we’ll see much of the same. We likely won’t get that volume of stock hit the market this season and it’s a good thing – it’s given the market some stability, making this year a bit of a ‘breather’ for the market to readjust.”

Andrew’s advice to buyers and sellers this season: 

Buyers – now is a good time to buy. You have to be prepared to show up, be competitive and don’t sit on your hands too long. If we’re not at the bottom of the market already, we are close, so prices are going to start going up again. My best advice is to deal with the market you have in front of you right now, and jump on good property now while we’re still in this cooling period.

Sellers – now is a great time to sell purely for the lack of stock in the market. Keen buyers will be hanging around, waiting to snap it up.

Overall, in a steadied market, now is a good time to be trading no matter which side of the deal you’re on. 

Western Australia

Rob Mandanici, Director of Paddington Realty Perth

Current market:

Rob says, “We’ve seen the edge come off the market. It’s not a massive reduction, but a ‘cooling’ for sure.”

He continues, “Thanks to rising interest rates and tightening lender policies, we’ve seen an exit of the marginal buyers with only the ‘better quality’ buyers still in the market. These better quality buyers are those that are the most financially prepared to take on a home loan, with unconditional offers and strong, uncomplicated offers ready for vendors.”

He explains, “When talking about those that have been temporarily closed out of the market, we’re noticing it’s not a certain type of buyer (e.g. all downsizers or all first home buyers) that have set this selling season out, it’s really about the intent and that fact that any with diminished borrowing power has just taken a sideline for now.”

Concluding, Rob says, “Banks aren’t saying ‘no’, they’re saying ‘not right now’. Anyone with one or two questionable things on their credit history is being noticed.”

For the rest of spring and summer selling season: 

Rob expects the rest of the season in Perth to continue as it began, “We’ll see a reasonably buoyant but cautious market over the next couple of months. Both buyers and investors will have more due diligence and approach with caution.”

He continues, “seeing some of the heat come out of the market isn’t a bad thing – things are falling into place and steadying after a period of crazy growth. As inflation rises, so does the cost of living – buyers deserve this much-needed steadying of prices particularly as we are encouraging more investment in the Perth market to help bring more rental stock onto the market.”

Rob’s advice to buyers and sellers this season: 

Rob says, “Everywhere in Perth is the perfect place for investment. There is lots of choice, great returns and the market is crying out for it. We are experiencing painfully low vacancy rates right now and more investor purchasing can help ease that.”

He continues, “My advice extends to buyers on both the West and East coast – consider property investment in Perth. Especially for those in the Sydney and Melbourne markets, our prices are affordable and an attractive opportunity with great tenants lining up around the block right now to get into a good rental property.”

Rob concludes, “As we see in all markets right now, but especially Perth, the lack of stock is the biggest problem right now.”

Queensland

Avi Khan, Director of Ray White AKG, Marsden, Daisy Hill

Current market:

Avi says in the Queensland market, “ On one hand, interest rates are rising rapidly, restricting people’s ability to borrow. On the other hand, the fundamentals of property are supporting the market – international migration is starting up again and a construction crisis is restricting new supply.” 

He continues, “While we’re experiencing a down market – a good time to be a buyer of any property – there is one type of property that is worth looking at, provided you have a bit of patience. The focus of savvy buyers this spring is on unrenovated properties, which are presenting as a more immediately-affordable option with renovated property prices soaring thanks to the cost of building materials and labour.”

For the rest of spring and summer selling season: 

He continues, “More housing is needed and we need it now. This is showing up in sharp rent increases which will sooner or later flow through to sale prices.”

Avi’s advice to buyers and sellers this season: 

A particular feature of the economy right now are very high construction costs. It has been driven by a range of factors but supply chain blockages and labour shortages are the main ones. At some point, these will ease off. In the meantime, although house prices have come back, it is difficult to buy a renovated property – pricing continues to hold up because of how hard it is to renovate or knock down and rebuild. With a lot of unrenovated properties available, at decent prices, if you are prepared to hold for around 12 months, this represents a buying opportunity.

The property market in summary:

Tim McKibbon, CEO of REINSW sums up this selling season:

• Buyer and seller confidence took a knock from interest rate increases, but they are beginning to adjust and get back out on the floor.
• We should see a slight increase of stock hit the market as we head to Christmas with buyer and seller sentiment improving.
• Sellers must remember that if they have held a property for 3+ years, the cooling of this year’s prices doesn’t mean a loss. You will still have capital growth on your side overall
• Immigration is back up to record highs with borders open, putting more pressure on vacancy rates and low stock issues on the residential sales markets
• Even though prices are lower, when you’re transacting both ways in the same market you don’t lose out. If you sell lower, you can also buy lower.