#2

Weekend Auction Insights 27th APR: A Detailed Look at Market Dynamics

In our latest weekend auction review, the performance across Australian capitals showed steady activity during the ongoing holiday period, though results varied significantly from city to city. With a national clearance rate of 62.8% from 1,730 properties listed, the market experienced a slight downturn compared to last week's 70.9% and a decrease from 72.5% the same weekend last year. However, the volume of auctions remained robust, indicating persistent market activity even amidst seasonal fluctuations.

City-Specific Highlights:

• Adelaide continued to outperform other capitals, leading with an impressive clearance rate of 78.6%.
• Sydney also saw healthy activity, recording a clearance rate of 72.3% from 667 auctions. Notably, the highest sale was a 3-bedroom house in Hunters Hill, fetching $4,350,000.
• Melbourne's market softened, with a clearance rate of 65.2% despite an increase in listings. The top sale in Melbourne was a 5-bedroom house in Glen Iris, which sold for $3,310,000.
• Brisbane and Canberra experienced more challenging conditions, with clearance rates of 42.5% and 55.5%, respectively.

These figures reflect the mixed responses to current economic conditions, with certain areas demonstrating resilience and others showing signs of strain. As we transition out of the holiday period and into May, we expect to see a normalization in the auction market. This change marks the commencement of the final phase of the autumn selling season, where we anticipate different dynamics as buyers and sellers adjust their strategies.

Market Update: First Signs of Easing Mortgage Stress in 2024

In a positive turn for Australian homeowners, the latest report from Roy Morgan highlights a decline in mortgage stress—the first such decrease we've seen this year. As of March 2024, approximately 1,531,000 mortgage holders, or 30.3% of all mortgagors, were identified as 'at risk', showing a reduction of 98,000 from February's statistics. Although these figures still hover slightly above the December 2023 count of 1,527,000, the downward trend signals a crucial respite for many.

This recent drop represents the lowest level of mortgage stress recorded this year, primarily driven by an increase in household incomes which has helped alleviate some financial pressures. Nonetheless, it's important to note that the proportion of mortgage holders deemed 'extremely at risk' stands at 18.7%, still surpassing the long-term average of 14.4%.

What's Behind the Change?

Michele Levine , CEO of Roy Morgan, attributes this easing to a robust job market and a pause in interest rate hikes since November 2023. These factors have contributed to rising incomes, allowing more Australians to better manage their mortgage responsibilities.

Looking Ahead

Despite the current relief, the financial landscape remains precarious with the Reserve Bank of Australia's upcoming policy meetings in May and June. Expected discussions on rate adjustments could potentially place an additional 50,000 people at risk of mortgage stress, should rates increase. This possibility underscores the need for continued vigilance and strategic financial planning among homeowners.

Economic Update: Diverging Trends in Inflation Signal Complex Times Ahead

The latest inflation data released by the Australian Bureau of Statistics presents a complex picture for the Australian economy, combining elements of both optimism and caution. Over the past year, we have witnessed a substantial decline in annual inflation rates, falling from 7.8% in December 2022 to 3.6% by March 2024. This trend is a positive signal, suggesting a gradual easing of the price pressures that have challenged consumers and policymakers alike.

However, the situation is not straightforward. The most recent quarterly data tells a different story, with inflation unexpectedly rising from 0.6% in the final quarter of 2023 to 1.0% in the first quarter of 2024. This uptick may seem modest, but it is significant enough to warrant attention from both market analysts and the Reserve Bank of Australia (RBA).

Implications for Monetary Policy and Market Dynamics

This dichotomy in inflation trends illustrates the ongoing challenges within the Australian economic landscape. While the year-on-year decrease provides some relief, the quarterly increase underscores persistent inflationary pressures. Such pressures suggest that the RBA may opt to maintain a cautious approach regarding monetary policy adjustments.

For Australian homeowners and investors, these trends imply that any anticipated relief in home loan rates may be delayed. The RBA's priority will likely remain on containing inflation to sustainable levels, which could mean holding interest rates steady or even increasing them should inflationary pressures persist.

Real Estate Update: Vendor Discounting Rates Show Market Heating Up

In the latest assessment of Australia's property market, a noteworthy trend has emerged from the data provided by CoreLogic Australia . Over the past year, from March 2023 to March 2024, we've observed a significant decline in the national rate of vendor discounting, dropping from 4.2% to 3.6%. This shift is notable across nearly all capital cities, with the exception of Darwin, signaling a robust and competitive market environment.

Understanding Vendor Discounting

Vendor discounting refers to the difference between the original listing price of a property and the price at which it is ultimately sold. A decrease in this rate generally indicates that properties are selling closer to their asking prices, a sign that demand is meeting supply assertively. This year's reduction highlights a market where competition among buyers has intensified, thereby strengthening the sellers' positions.

Market Implications

This trend is a clear indicator of a heating market, suggesting that the balance of power is tilting in favor of sellers. Potential buyers are finding themselves in environments where bidding close to the listed price might be necessary to secure a property. For sellers, the current climate could not be more favorable, as they are more likely to achieve, or even exceed, their initial price expectations.

Insight Report: Decoupling of Mortgage and Cash Rates

A recent study by the Reserve Bank of Australia has shed light on an intriguing trend in the financial landscape—while there have been substantial increases in the cash rate between May 2022 and December 2023, climbing a total of 4.25 percentage points, mortgage rates have not mirrored this rise proportionately. The data shows that mortgage rates increased by only 3.21 percentage points, capturing 76% of the total hike. This is a noticeable departure from previous periods in 2006-08 and 2009-10, where mortgage rates closely tracked cash rate increases at 87%.

Exploring the Causes

This divergence raises important questions about the current dynamics of the mortgage market, which appears to be influenced by two significant factors:

1. Increased Market Competition: The mortgage lending landscape has become fiercely competitive, which may be tempering the extent to which lenders are willing to pass rate increases onto consumers.
2. Pandemic-Era Fixed Rates: A substantial number of homeowners took advantage of historically low rates early in the pandemic by locking in fixed-rate mortgages. As these fixed terms expire, we are likely to see an adjustment period where the pass-through of cash rate increases will start to align more traditionally with mortgage rates.

What This Means for the Market

The implication of these trends for Australian homeowners and investors is multifaceted. On one hand, the lag in mortgage rate increases provides a temporary buffer against the immediate financial strain of higher repayments. On the other, as fixed rates expire and adjust to reflect current market conditions, there may be a sharp correction that could impact affordability and market stability.