Agents see potential opportunities emerge, but economists warn that price drops will continue
An uptick in home prices last month has split the housing market, with agents believing that opportunities could emerge as the market stabilises, but economists predicting that a bleak economic outlook will stifle demand.
National home prices rose in February, spurred by limited supply and strong demand, according to The Australian. The PropTrack Home Price Index found that prices were up 0.18% nationally last month, with all capitals except Hobart posting gains.
John McGrath, CEO of real estate company McGrath, told The Australian that there has been an uptick in demand across the housing market.
“Since Christmas we’ve seen a significant increase in buyer activity in Sydney, with online inquiry and open house numbers both spiking since January.”
McGrath pointed to two drivers in the housing market.
“Firstly, listing levels are so low demand is outweighing supply,” he said. “However, the most telling factor is that buyers have sensed that we are at the bottom of the market cycle and they’re keen to get in during 2023 before we see rises in 2024.”
McGrath said that prospective buyers had already accounted for predicted rate rises.
“Buyers have factored in at least two more rate rises to their calculations, which I think is sensible, but they’re buying in most parts of Sydney at a 15% discount to 18 months ago, so, in the main, they even each other out,” he told The Australian.
McGrath also said that the skyrocketing rental market, where prices have jumped by 20% in most areas, is encouraging people to buy.
“First-home buyers are trying to get off the rental market and into homeownership if they can,” McGrath said.
McGrath acknowledged that many homeowners will be in for a shock as fixed-rate loans roll off.
“The greatest challenge will be fixed home loans coming off all-time lows and having to refinance at current rates after nine consecutive rises,” he told The Australian.
McGrath said the fixed-rate cliff could be a driver for higher listing activity. He also said the surge in migration could boost the market.
Read next: Here’s why homes are taking longer to sell
“With a forecast migration boom of around 300,000 into the country over the next 12 months, it should be more than enough to keep prices at current levels and indeed start upward pressure on values again within 18 months,” he said.
Ray White chief economist Nerida Conisbee told The Australian that the recent price gains in Sydney were probably driven by increasing population and housing shortages.
“Prices are starting to rise and listings remain low, meaning less competition for sellers, so it’s the perfect storm in property,” she said.
More price pain to come
Despite some agents’ optimism, the residential property market is still under pressure, with homes taking longer to sell and economists forecasting further price drops despite the uptick last month, The Australian reported.
Investment bank Morgan Stanley recently predicted that prices would continue to fall despite the slight bump last month.
“Our view remains for a 20% peak-to-trough price decline and, as such, we believe we are around halfway through this current price correction,” the bank said.
Jarden property analysts said that of all property sectors, the news was most negative for residential, with developers Mirvac and Stockland reporting weak first-half earnings from their housing operations.
Jarden warned of further housing pain unless the market corrects itself more quickly than expected, with feedback from developers suggesting that sales momentum would remain sluggish until rate stability improves, The Australian reported.
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