Australian Property Has Turned A Corner. Just Ask The Banks

Thinking about buying or selling a house? A flurry of forecast revisions from the big banks is the latest sign that the?housing market?is changing.

Australia’s big banks sometimes have to do an embarrassing retreat. When they do, there’s safety in numbers. So it is no surprise that all four of them have put out brand new house price forecasts in the last week or so, reneging on their previous pessimistic predictions.

They were forced to, really. Forecasts can’t ignore reality forever. And the reality is that in Australia’s bellwether markets, prices are well and truly rising. It is an established fact that Sydney’s prices move before Melbourne’s, and that the top end moves before the bottom end. So when Sydney’s luxury property market began to show signs of life in February, it was a hint the rest of the market would be pulled out of its downward trajectory eventually.

Auction clearance rates tend to rise when the market is starting to turn , and on recent weekends, auctioneers have been finding their job easy. Bids are flying and homes are selling under the hammer. In Sydney’s most recent auction weekend, clearance rates hit 73% compared to 55% last year, while in Melbourne rates hit 70% compared to 60% last year.

The Bottom or the Beginning of Another Boom?

The question remains though: is this just an end to the falls? Or is it the start of a meteoric rise?

The banks are split on the question. CBA predicts prices to rise 3% in 2023. NAB expects a slight fall in the year, ANZ and Westpac say the market will be mostly flat for the rest of the year. They all agree that 2024 will see a return to price rises, albeit gentle ones.

A lot depends on lending. As the next chart shows, lending has finally stopped falling. Aussies are heading back to mortgage brokers and banks and borrowing more for housing. That is a notable turning point. It turns out high interest rates aren’t the big impediment—it’s?rising interest rates. When rates are rising, people are frightened. But when they stop rising, as they did in April, people start to feel like the worst is behind them.

Is a Flat Market Even Possible?

Australians have grown accustomed to seeing markets soar when they aren’t plunging, but long periods of no house price growth are perfectly possible. The Australian housing market was more or less flat for the entire 1990s, with prices growing just a third in that decade: equivalent to how much they grew in about 20 months during COVID-19. Flat markets are unfamiliar to us, but far from impossible.

The uncertainty around property prices at the moment stems from the unusual combination of factors influencing prices. Population growth is soaring, but as we saw in Covid that isn’t necessary for price rises. Interest rates are higher than before. But is it the level of interest rates that affects buyers, or the pace at which they are changing?

The data on lending above seems to suggest that rising rates scare buyers far more than high rates. High and rising rents should also push people to buy homes, but how much? We are not sure because that’s not a scenario the Australian property market has seen for a long time. Some renters have deposits saved, or partly saved, and could get into the market, but not all.

There’s also the question of people per dwelling. During the covid pandemic, people moved to get more space and the number of people-per-dwelling shrank, as the next chart shows. That can easily reverse, with fewer kids moving out of home and more share houses forming.

A lift in this measure can absorb a lot of pressure on the housing market without new houses needing to be built. That means the upward pressure on housing prices needn’t be as intense as you might think if you simply look at the mismatch between population growth and the number of dwellings being constructed.

The housing market is going to be tight, but is it time to buy? That depends on how people react to the unusual conditions.

Developments throughout the spring selling season in the second half of the year will be even more crucial than usual. Keep an eye on auction clearance rates and the top end of the Sydney market to get a rough signal about what might be flowing through to the rest of?Australia’s property market. And, like the banks, be ready to revise your expectations, if reality proves them wrong.

SOURCE: https://gdevelopments.com.au/