As demand outstrips supply pressure mounts on housing prices
Selling conditions are on the up for vendors in Australia’s capitals
3 min
Not that long ago, Australia was in the midst of the fastest drop in housing values on record, as rapidly increasing interest rates caused capital city values to plunge more than 9 percent in the space of about 10 months.
That’s all changed since hitting a low in February, with three consecutive months of positive growth in housing values due to a significant imbalance between supply and demand. So, less than a week out from winter, what’s the outlook for Australia’s property market?
Resilience: Competition is rife
There’s not a lot of competition in the market for vendors currently with decade-low listing numbers. It’s one of the reasons selling conditions have strengthened, as evidenced by above average clearance rates, faster selling time and less negotiation. For context, the total number of homes listed for sale nationally is tracking 28 percent below usual. When listing volumes are very low, selling conditions strengthen, which means potential vendors thinking about selling may well be tempted to list now rather than waiting until the traditional spring period, when activity surges and there’s a spike in competition to sell.
Rising prices: Sustainable or not?
Home values for the four largest capital cities all recorded an increase in housing values from the lows recorded in February. A mid-month update based on CoreLogic Australia’s daily Home Value Index showed the upswing gathering momentum, especially in cities such as Brisbane where the index is up 1.0% over the past four weeks. Sydney however is still leading the charge. Considering housing affordability measures remain stretched such a strong rate of growth is surprising and probably unsustainable. Clearance rates: Low supply vs high demand
Auction clearance rates have been holding at 70% or higher in recent weeks and volumes are slowly on the rise at a time when they would traditionally start to drift lower. Coupled with the upwards pressure on housing values these signs suggest, if anything, the market is gathering momentum rather than slowing down. The stronger clearance rates along with other vendor metrics like faster selling times for private treaty sales and reduced discounting rates, indicate sellers are getting a little bit more leverage back.
Buyer motivation: Urgency and FOMO on the rise
Fear of Missing Out (FOMO) or buyer concern about being left behind was at its peak when the market was in full flight in 2021. While the trend is not back, yet, it does appear that some buyer demographics are highly motivated to get into the market. If the trend for low advertised stock
levels, rising clearance rates and higher values continues, it would not be surprising to see FOMO becoming more pervasive. As demand picks up against strong overseas migration and extremely tight rental markets, there’s likely to be some renters who try to fast track their purchasing decisions as well. The pool of available properties they’re competing for is the smallest it’s been in more than 10 years. A sense of urgency will likely play a part in some decision making over winter.
Challenges: Interest rates and market sentiment
Demonstrating an ability to service a loan is going to be one of the biggest hurdles that prospective buyers will face this year. Interest rates are high, but assessment levels are three percentage points higher again. However, qualifying for the loan is only one challenge. We can’t ignore low consumer sentiment levels, which will also be having some dampening effect on the market’s current exuberance and we shouldn’t expect to see a material lift in property activity until there’s an improvement in consumer confidence more broadly.
Wavering confidence: Economic uncertainty
If the RBA were to cut interest rates there is a good chance we would see a lift in consumer spirits, accompanied by a substantial pick up in both buyer and selling activity. Logically, lower interest rates would be the catalyst for a further uptick in housing values. Of course, we’re not expecting a rate cut anytime soon and there’s speculation that rates may even rise a little bit further this year. Economists are split on their forecasts with predictions for further rate hikes, some stability and some cuts later this year. All of this is likely to be adding to uncertainty and low consumer confidence levels, however any reduction in rates will likely be the cue for more buyers and sellers to become active again.
Homeowner resilience: Mortgage repayments remain steady
We would be naive to think there isn’t going to be a rise in motivated selling or increase in mortgage arrears in the short to medium-term. However, coming off record low rates, most banks were reporting 90-day arrears rates of around 0.5% to 0.6% at the end of 2022. That benchmark is set to increase, however most homeowners or borrowers will do their best to pull back sharply on discretionary spending before missing mortgage repayments or selling their home.
After winter, what’s next?
Spring 2023 is going to be interesting. Historically, it’s the season for new listings and sales transactions, but that activity didn’t materialise for spring last year. There’s possibly some accrued supply building up from people who have been thinking about selling but holding back, and if the market remains relatively buoyant we could see a very active spring this season. A material increase in advertised supply could dampen values and clearance rates as more homes come on the market.
Tim Lawless is Research Director at CoreLogic Asia Pacific
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Australia’s housing affordability crisis is being fuelled by chronic undersupply, planning delays and rising development costs, as politicians continue to focus on the wrong solutions.
3 min
Australia’s housing crisis will not be solved by first-home buyer incentives or tax changes alone, with leading property figures warning governments must tackle supply constraints if affordability is to improve.
Speaking at the Kanebridge Quarterly Property Leadership Summit in Sydney last week, expert project marketing specialist Sam Elbanna, property investor and fund manager Paul Miron and property consultant Karla McNeice said that a lack of housing supply remained the central issue facing the market.
Elbanna, Director of CPM Realty with more than 30 years’ experience in project sales, argued that successive governments had focused too heavily on stimulating demand rather than addressing the barriers preventing new housing from being delivered.
“The misconception is that politicians think the way to solve the housing crisis is to drive demand,” he said.
“The reality is that’s not the way. This is a supply-side problem, and it needs to be solved on the supply side.”
Drawing on his experience in project sales, Elbanna said policies designed to help first-home buyers often had unintended consequences, pointing to previous grants that ultimately flowed through to higher property prices.
Instead, he said developers were facing increasing red tape, approval delays and rising costs, which were discouraging new housing supply.
“In the absence of stock, demand exceeds supply,” he said.
Miron, a Co-Founder and Fund Manager of Msquared Capital, said the housing debate had become overly focused on tax policy while overlooking broader structural issues.
He argued that affordability challenges stemmed from a combination of factors, including planning constraints, supply shortages, migration levels and interest rates.
“No-one can be 100 per cent certain on the real reason for property prices is going up,” he said.
“The reason why property prices are higher is a combination of interest rates, lack of supply, migration, vacancy rates and maybe taxes play a role.”
Miron was critical of recent federal housing policy changes, warning they could reduce the number of new homes being built and further constrain supply that was even highlighted in the budget.
He also highlighted the importance of the property sector to the broader economy, noting that residential real estate and related industries employed more than one million Australians.
McNeice, who advises developers on sales strategy and market intelligence, said understanding buyers had become increasingly important as affordability pressures intensified.
While affordability remained a major consideration, she said today’s buyers were focused on value rather than simply price.
“People are looking for value for money,” she said.
She said buyers were increasingly evaluating factors such as transport connections, walkability, nearby amenities and flexible living spaces that could accommodate changing family needs.
“What infrastructure is going on? Can I walk to the shops? Can I meet people at the local cafe?” she said.
The panel also discussed the mounting pressures facing developers, with Elbanna arguing that many projects become financially unviable from the moment a site is purchased.
“The viability of a development happens at the moment the site is bought,” he said.
He said rising construction costs, higher interest rates and overly optimistic feasibility assumptions had left some developers exposed as market conditions changed.
While acknowledging the growing number of smaller and first-time developers entering the market, Elbanna said property development required expertise across finance, construction, marketing and legal disciplines.
“It is actually a business that requires a level of expertise,” he said.
Looking ahead, the panel agreed opportunities remained in the market despite current challenges.
Miron said property should continue to be viewed as a long-term investment and cautioned against trying to time short-term market movements.
McNeice said success would increasingly depend on identifying projects that genuinely met changing buyer expectations.
Elbanna said affordable housing remained achievable, but developers needed to deliver more than just homes.
“We can provide affordable housing in this country,” he said.
“But we’ve got to wrap that affordable housing with the things that people want.”
As Australia’s housing affordability debate intensifies, the panellists agreed on one point: without a meaningful increase in housing supply, demand-side measures alone are unlikely to solve the nation’s property challenges.
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