Property market update May 2023: low stock, regaining confidence and stabilising rates.

Marika Berney
homely property market update may 2023
5 min read

After a 9.1% fall from May 2022 to February 2023, Australian property prices have started to show signs of recovery. CoreLogic’s national Home Value Index (HVI) posted a second consecutive monthly rise in April. According to CoreLogic’s Tim Lawless, the HVI increased by 0.5% in April, following a 0.6% lift in March, with the past 3 months recording a 1.0% rise. 

Ray White Chief Economist, Nerida Conisbee, notes in the April issue of Ray White Now, that the drop in prices over the last few months was far less dramatic than the pandemic’s extreme growth. The report also states that it appears the suburbs that experienced the biggest downturn are now leading the sale price recovery. 

Tim Snell, CEO of Ray White NSW adds, “History shows us that sellers like stability. Despite all predictions, the current impact of mortgage stress hasn’t been as dramatic as anticipated.” 

Nerida advises that based on current projections, it looks like we could be back to the pandemic peak in the second half of 2023. 

So, are we heading for a record-breaking Spring? What does the current property market mean for you? Here’s what you need to know: 

1. Prices are on the up, but we just had another rate rise – what does this mean and why did it happen? 

The Reserve Bank of Australia (RBA) opted for another rate rise of 25 basis points last week, kicking off the month of May by taking the official cash rate to 3.85%. 

According to Pete Wargent, economist and Co-Founder of BuyersBuyers, “House price expectations shot up between February and April, and full-time employment remained at high levels. This likely pushed the RBA to intervene with another rate rise now to avoid prolonged inflation later.” 

Tim Snell notes, “The recent rate rise was a surprise, only in how quickly it came. Whilst we all anticipated a ‘hold’ on rates for perhaps at least another month, the RBA had signalled more rises were to come.”

Tim explains that by increasing the cash rate now, the RBA has potentially done homeowners a favour in the long run. “The strategy of ‘ripping off the bandaid’ may be uncomfortable in the short term but should also allow easing in rates to happen faster in the future – no doubt welcomed by all mortgage holders.”

“As soon as stability in rates is found, the market typically strengthens.”

2. Stock levels are at a record low and are set to stay that way

The Australian property market is facing record-low stock levels, which has arguably kept prices from falling as far as originally predicted over the last 12 months. Lower stock ensures that the demand for housing stays steady – so that whatever is on the market, sells. In turn, we’re seeing an intensified rental shortage. 

Scott Spencer, CEO of Well Money, noted that together, the shortage of listings, rising rents, and higher immigration numbers have all contributed to an increase in demand for housing. 

He says, “FOMO has certainly kicked in with the rental market, costing renters big time. Some rents have climbed in the double digits and may not show signs of coming down due to the shortage in housing supply.”

Scott continues, “The increase in property prices could continue through this year with a shortage of listings, rents going through the roof and huge immigration numbers all contributing to people wanting to buy.”

But, why do we have such low stock levels right now?

According to Tim Lawless, many potential sellers have stayed on the sidelines, keeping inventory at below-average levels and giving sellers the upper hand in negotiations. 

It’s more than just rising prices and immigration driving the stock down. The construction has taken hit after hit since 2020. Initially, resources were scarce and labour slowed due to the pandemic. We then saw the cost of materials rise steeply, shortly followed by the increasing interest rates putting off adequate investment into new builds. In recent months some of Australia’s leading builders and developers have folded, unable to cope with the rising costs of doing business. 

In the Ray White Now report, Nerida points out that new home supply will remain constrained, with Australia facing a shortage of 100,000 homes over the next four years. With supply constrained, both rents and house prices are unlikely to drop anytime soon. 

Additionally, Pete highlights, “Higher interest rates will not help new home sales or construction loans. With many developers falling into insolvency, there will be no near-term let up in rental market pressures.” He concludes, “Indeed the RBA expects rental prices to be a key driver of inflation through 2023”

3. Renewed confidence to draw investors back to the market

It’s no secret that legislation changes have made cashflow-positive investment properties harder to maintain. That, paired with the opportunity to cash in on huge capital gains over the pandemic saw many property investors exit the market over the last 18 months. 

But with confidence regaining and rents going through the roof, we might be seeing a renewed appetite for property investment on the horizon. 

Tim Snell comments, “Real estate in Australia has always remained a resilient asset. Especially in the larger cities. There is no denying that investors have been cashing out their equity from the recent booms as the cost of servicing their mortgages has increased. However, the rental shortage is swinging the pendulum back in their favour.” 

He continues, “Recent reports have seen green shoots in price improvements signalling the potential ‘bottom’ of the market cycle may have been reached so confidence for investors will no doubt follow.”

The question is – will this help to ease the rental shortage? 

4. ‘New normal’ rates and prices will squeeze first home owners and buyers a little more

Months of rate increases have significantly diminished the borrowing capacity of those saving to buy. Scott Spencer says, “We’ve seen borrowing capacity drop by approximately 30% since this rate hike cycle began. When they can borrow less, they need to be able to come up with higher deposits to get the homes they want.” 

Scott adds, “with the cost of living also sharply rising, that deposit hurdle is an ever-increasing challenge for a lot of Australians.” 

Pete Wargent warned late last year of the imminent ‘fixed rate mortgage cliff’ and we have officially reached it. With waves of fixed rates expiring and rolling onto variable terms at higher rates, Nerida warns in the Ray White Now report that households will need to be prepared for this change. 

5. Savvy buyers have a chance to capitalise now

It is expected that there will be a ‘confidence lag’ while the market builds back up to its pandemic highs – and experts suggest buyers should capitalise on this.

While buyers may be concerned about the recent interest rate rise, vendor and buyer advocate Matt Scafidi, Founder of Abode Advocacy Group, believes that it has only increased the urgency among buyers.

“With low stock levels, higher buyer demand, and the expectation of increased demand from migrants, many buyers are looking to secure their new property before pre-approvals lapse.”

Tim Snell comments, “The winners in this market are those with money to spend and have the courage to spend it.” Specifically, he notes, “Sydney and Melbourne saw price declines over the last 12 months. Those with a long-term view on holding real estate are able to purchase at far better prices than was available in the boom.” 

He adds, “People will no doubt look back years from now and talk about what prices they ‘could have’ purchased at in 2023.”

Scott Spencer follows up in a similar vein, “We’ve seen an increase in buyers wanting to get on top of their ability to purchase by locking in a conditional approval right now in hopes of snagging a bargain. Coming into Spring, prepared buyers will be ready to capitalise early especially if house prices remain steady.”

Tim Lawless concludes, “For those attempting to time the market, that it is considered to be a good time to buy.”

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Marika Berney
Marika is the Marketing & Communications Manager at Homely and property enthusiast. Homely is an industry-backed platform with user-friendly property listings, millions of helpful suburb reviews from locals and agent profiles to help better connect homeowners with the resources they need to sell, buy and lease.

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