Property Report - Issue 97

Another day, another 25 basis point rate rise. It can be assumed it has become an expected norm by now, but everyone’s asking, have we seen the end of this cycle, or is it only just the beginning? The 9 rate rises and counting have been met with mixed emotions from the public and general confusion as to what the lasting effect is going to be.

It has been an incredible start to the real estate market in 2023. Research has shown on average it can take buyers 7 months to buy a property. And with the end of Winter lag from last year, a lot of buyers who were delayed in purchasing due to the lack of a Spring selling season, made the decision to buy a property in February. Seeing positive results in November and February, some may be disillusioned by what is actually happening in the marketplace. So, let’s break it down.

The mortgage cliff. On one hand the media is predicting a steep mortgage cliff, due to expire this year, with some mortgages going up 4-5%. With this is mind, some homeowners may be wary about their spending and focused on interest rates more than they have been in the last 2 years. This has created 2 schools of thought; can homeowners afford to keep their homes? Will there be an opportunity for buyers to get into the market at an affordable price?

Interest rates. With the cash rate increasing by 25 basis points to 3.35% on the 7th February, it has left the public questioning whether this will be a sign of easing measures by the RBA, or the continuation of a series of interest rate hikes through 2023. Most brokers are working closely with their clients to factor in a number of rate rises with a higher assessment rate to ensure their budgets remain strong. This has also produced more stubborn buyers with smaller deposits.

Inflation. We can’t control it and yet we all cause it. We cause it when we decide to get the almond croissant as well as the coffee, instead of just the coffee. And with an inflation rate floating around 7.8% post-Christmas, the public feel as if the RBA’s movements with firm policies are a slap on the wrist for spending money when we shouldn’t have. But will an easing real estate market cause people to spend less on consumer goods? Or will a stable real estate market facilitate saving and a shift in consumer spending?

The media has taken several approaches to create alarm and influence spending habits in the past 10 months. From predicting a recessional market to severe mortgage stress, media articles have focused strongly on interest rates as closely as it did Covid cases. Why? Because fear driven media is popular. We were quoted in The Age this month talking about regional house prices post Covid. Dispelling fear tactics, the good news is the house price median is still up, and regional Victoria still averaged a whopping 107.8% growth over a 5 year period. We predicted the market floor to be in Autumn, and a return to normal prices sometime this year.

Throughout the last 2 years we have seen success stories and experienced hardships. We have worked with clients who have benefitted from the inflated prices to those that have been affected by inflated rates. Within a 2 year period some homeowners saw incredible returns of up to 60%, to some experiencing up to a 13% decrease in value over a 2 year period. What it boils down to in the end is what is perceived as being valuable to people.

Coming to the end of Q1 2023, we have seen 30% of listings sell, and the good news? 66% of those sales were either at their reserve price or within their respective price ranges. This give us hope for a stable market through Autumn and a positive outlook for the start of the year. We’re encouraging clients to work closely with their brokers to see what they can do with their loan products. See what you can do to plan ahead and implement a budget to guard your family’s finances in 2023.

Regards,

William Verhagen - Integrity Real Estate

References:

Property Data: https://reiv.com.au/property-data/member-resources/research- bulletin/memberonly/median/dec-q-2022-(full-release).aspx?_zs=7SRJm&_zl=HjfP2 

Domain: https://www.domain.com.au/research/rental-report/december- 2022/?utm_medium=email&utm_source=domain&utm_campaign=%5B2023%2F01%2F19% 5D%20Domain%20Auction%20%7C%20Market%20Wrap%20- %20December%20quarter%20-%201912023

The Guardian: https://www.theguardian.com/business/2022/aug/27/underquoting-in-australian-real- estate-industry-is-leaving-buyers-feeling-betrayed