July Market Trends: Surge in Investor Activity Impacts Sales and Rentals

Monday 5th August 2024

As July comes to a close, we've gained valuable insights into the evolving market conditions as we transition toward the end of winter. One notable trend is the rise in investor activity, which is having a significant impact on both the sales and rental markets.

Increased Investor Activity

Recent data reveals that investor borrowing has surged to its highest level in over two years. According to the Australian Bureau of Statistics, new home loan commitments to property investors climbed 2.7% from May to June, reaching $11 billion. This marks the highest monthly figure since March 2022. In the 2023-24 financial year, total new investor credit (excluding refinancing) increased nearly 18%, totaling $117.9 billion.

This rise in investor activity is reshaping the market dynamics, particularly in the rental sector. With more investors entering the market, we've seen an increase in rental property supply, leading to a softening of rental prices. This shift is a notable change from the past couple of years, where rents surged as investors sold properties to capitalize on higher home prices, while new investors hesitated due to rising interest rates and increased compliance requirements.

The Impact on Renters and Homeowners

For tenants, the influx of investors and the resulting increase in rental supply is positive news, as it contributes to stabilising or even reducing rental costs. However, this trend may pose challenges for homeowners and potential sellers who were hoping for continued price increases.

Feature Article: Investor Borrowing Peaks

Our featured article highlights the recent spike in investor borrowing:

"Investor Borrowing Picks Up to a Two-Year High"

Investor borrowing reached its peak in June, with new home loan commitments rising 2.7% from May to $11 billion, the highest since March 2022. Despite a slight increase in national vacancy rates—from 1.2% in May to 1.3% in June—Australia's housing market remains attractive to investors. This is attributed to a tight rental market, higher gross rental yields, and a narrowing spread between owner-occupier and investor mortgage rates.

According to Maree Kilroy, Senior Economist at Oxford Economics Australia, the tightening of inflation expectations has led to a stabilisation of the cash rate at 4.35%. This is likely to temper house price growth, with a projected increase of around 5% in FY2025, down from the 7.6% growth recorded for FY2024. Perth, Adelaide, and Brisbane have seen significant price growth, while Melbourne and Hobart have lagged behind. Sydney is positioned in the middle of the pack, with Perth expected to lead the market through to mid-decade due to strong population growth and affordability advantages.

New loan commitments to owner-occupiers increased slightly by 0.5% to $18.2 billion for June, and the value of new home-building loans rose by 2.9% to $1.8 billion, the highest monthly total since November 2022. This suggests a rebound in the residential construction sector. Conversely, the number of new loans for refinancing fell for the fourth consecutive month, reaching its lowest point since December 2020.

Conclusion

As we move forward, the market trends indicate a shift towards increased investor activity and its impacts on both the rental and sales sectors. While tenants may benefit from more favorable rental conditions, homeowners and sellers should be prepared for a potentially softer price growth trajectory. Stay tuned for further updates and insights as the market continues to evolve.

Feel free to contact us for more information or if you have any questions about how these trends may affect your property interests.