What Will The Property Market Do?

I hope you have been enjoying the last few long weekends.

This week we have seen a collection of newspaper and online articles that all seem to be focusing on the impact that interest rate rises will have on the property market.

Whilst no-one can ever be sure of what the market will do moving forward, if a vendor/seller had ambitions of selling in the short to medium term, it would seem prudent to take advantage of what is left of the current buyer activity and sell now.

This is also an extremely difficult time for current sellers. As we have seen over the past week, some of our sellers have recently rejected offers that they now wish they had taken. This trend unfortunately will become more prevalent in the future.

The PropTrack home index report for the month of April was released this morning with the contents of the report showing that the market across the country has slowed.

Whilst the Gold Coast & Queensland in general has seen some strong results, the report states that growth has now flatlined and the expectation moving forward is for price falls across the country.

The full Proptrack report that was released this morning for the completed month of April is below and is our feature article last week.

Please see below.

PropTrack Home Price Index: April 2022

The PropTrack Home Price Index shows that price growth has stalled across the country, with prices flat across the capitals in April. Sydney and Hobart have recorded their first monthly falls since the onset of the pandemic.Regional price growth continues to outpace capital cities, with trends towards lifestyle locations and larger homes benefiting regional New South Wales, Queensland and Tasmania in particular. But these trends also continue to boost prices in Brisbane and Adelaide, with both cities continuing to see solid price growth in 2022.

Here are the key highlights from the April 2022 report:

• Australian home prices increased by 0.13% in April and were flat across the capital cities. This is the slowest monthly result since prices fell at the beginning of the pandemic.

• April was a disrupted month for housing market activity, by both public holidays and the lead up to the federal election.

• Sydney and Hobart saw their first monthly falls since the start of the pandemic boom in prices.

• Perth and Darwin were the strongest performing capitals over the month, but both have seen weak conditions in 2022 so far.

• Regional areas continue to outperform the capitals in the post-pandemic market. Prices have increased 23% in the past year in regional areas, but only 14% in the capitals.

• Over the past year, growth standouts among the capitals have been Brisbane, Adelaide and the ACT, while regional QLD, NSW and Tasmania have led growth outside the capitals.

Home price growth by GCCSA for dwellings

Housing price growth has slowed considerably in 2022. In April, prices across the country increased at their slowest monthly pace since May 2020, the period just after national lockdowns were lifted and prices fell. Across the capital cities, prices were unchanged in the month.

However, this follows the third fastest episode in Australia's history, with prices up 16% in the year to April. Prices adjusted quickly to the reduction in borrowing costs as the pandemic shocked the economy and interest rates fell to their lowest level on record.

Regional areas, Brisbane and Adelaide continue to benefit from pandemic-induced preference shifts Regional areas continue to benefit from relative affordability and preference shifts towards lifestyle locations and larger homes following the pandemic. Prices have increased 23% in the past year in regional areas, but only 14% in the capitals.

The strength in regional areas has been particularly evident in regional NSW, Queensland and Tasmania, where growth has exceeded 23% over the past year - but the smaller capitals of Brisbane and Adelaide have also seen strong growth off the back of the same trends.

Houses have been the other big winner. House prices are up 18% over the year with units up by only 8% over the same period.

Outlook

Price growth has now stalled across the country, particularly in the major capitals.

Home prices have increased exceptionally since mid-2020, fuelled by historic low borrowing costs, unprecedented preference shifts and low volumes of available stock. To some extent, the run-up in prices reflected an adjustment to record-low borrowing costs, which could not continue indefinitely.

Buyers now expect borrowing rates, and borrowing capacity, to reduce significantly when the RBA starts lifting official interest rates this year. This is already weighing on prices.

Mortgage rates have already started to increase, in particular those for fixed-rate loans. The average rate paid on new owner occupier loans is now 2.5%, representing the first increases in several years.

Price growth in regional markets has been stronger than in capital cities for some time, and we expect that to continue, at least throughout 2022. The lure of regional Australia remains strong, with property prices still in most instances significantly lower than the cities, despite recent price increases.

The other markets likely to continue their strength are Brisbane and Adelaide, which have the appeal of city living with larger homes and lower prices.

The continued increase in investor activity, as well as immigration, is likely to benefit the major cities over the rest of the year. Preference shifts since the pandemic have also made both inner-city locations and apartments relatively cheap, which comprise the types of homes investors and recent immigrants often prefer.

Overall, price growth looks to be weak for some time.

We are likely to see a period where strong labour markets and wages growth are matched by higher borrowing costs. This is unlikely to see strong price growth.

However, in the past strong economic conditions paired with interest rate increases have often brought moderate price growth.

The most recent tightening phase, from 2002 to 2008, saw price growth average 8% per year. These conditions are unlikely to be repeated, but are instructive given how long it has been since interest rates in Australia were increased.

The speed of interest rate increases remain the biggest unknown for the housing market over the remainder of 2022