by Maria Irene
The Australian real estate market is in uncharted territory as it experiences the sharpest fall in housing prices in decades. This is usually the time when the Reserve Bank cuts interest rates or the federal government implements policies to stimulate demand for housing. However, high levels of inflation are preventing that from happening, at least for now.
As rates continue to rise, so too does borrowing capacity continue to fall. By the time of the October rate rise, borrowing power had already fallen over 20% and it has deteriorated significantly further since then. On the other side of the ledger, household costs are rising 4.7% faster than inflation, leaving less cash in the budget to service a loan. This is also eating into borrowing power for lenders basing assessments on actual expenditure.
Housing prices have come down, but less than half the fall in borrowing power we’ve seen so far. The hard data points to further falls ahead, and the outcome of the fixed mortgage cliff could be instrumental in deciding if price falls accelerate significantly later this year.
Economists including AMP Capital’s Shane Oliver expect a further fall of about 8% until around September, resulting in a top-to-bottom fall of 15 to 20%. Dr. Oliver expects prices to bottom around the September quarter, “ahead of gains late in the year as the RBA moves toward rate cuts”.
The Reserve Bank is expected to lift the cash rate by a further 0.25 of a percentage point this week to a peak of 3.35%, after inflation rose to a higher-than-expected 7.8% on an annual basis in the December quarter. But it may be the last increase in the current tightening cycle.
Amidst these sizeable price falls, it’s worth noting that some of the underlying fundamentals were actually providing a great deal of support for the market. New listing volumes for the normally busy spring selling season were at their lowest level since at least 2010. The complete lack of a seasonal ramp up in listings, which normally occurs this time every year, was also a factor supporting the market, but wasn’t enough to stop prices from falling.
Immigration and low stock levels are factors supporting the market, as auction numbers continue to rise. More than 1300 auctions are expected to be held next week across the combined capitals. Melbourne was the busiest capital city over the past week, hosting 259 auctions, up from 71 the week before, but well below the nearly 400 the same time last year.
In Sydney, auction numbers nearly quadrupled to 202 homes, compared to just 56 the previous week, as 72% sold under the hammer, based on preliminary figures. Numbers were also lower than the same time last year, when Sydney hosted 331 auctions, of which two-thirds sold.
As a crypto investor, the Australian real estate market may present opportunities to invest in assets that are undervalued and may see gains in the long term. However, it’s important to do thorough research and consider the current market conditions before making any investments.
In conclusion, the Australian real estate market is facing a challenging time as borrowing power declines and housing prices fall. While some underlying fundamentals are providing support, economists expect further price falls in the coming months. As always, it’s important for investors to do their due diligence and consider the current market conditions before making any investments.
Home Front::
- Borrowing capacity has fallen significantly due to rising interest rates and household costs, which are increasing faster than inflation.
- Housing prices have also fallen, but not as much as the fall in borrowing power, indicating that further price declines may be ahead.
- Factors supporting the market include immigration and low stock levels, but these are not enough to prevent prices from falling.
- Economists predict a further fall of 8% in prices until September, resulting in a top-to-bottom fall of 15-20%.
- The Reserve Bank is expected to raise the cash rate by another 0.25%, but this may be the last increase in the current tightening cycle, and prices may start to recover later in the year as the bank moves towards rate cuts.
