Late Spring Surge & When Will Prices Bottom Out? - November Market Update
October 30, 2022 / Written by Rich Harvey
Written by: Rich Harvey, CEO & Founder
We're starting to see an uplift in enquiries and noting a discernible change in buyer behaviour during our inspections. With an end in sight from constant interest rate rises, home buyers and investors are back on the hunt for good value property. This month I examine the impact of the recent Federal budget on the property market and future outlook for property prices. Will we see a recession and when will the market level out?
So, when will property prices reach the bottom? It's one of the key questions I’m frequently asked. The latest figures from CoreLogic’s daily home value index show that the rate of price decline is now slowing. This means we are through the eye of the storm and are moving beyond the correctional phase of this property cycle. Just how much further the market will drop is the subject of much conjecture. But as you will see in the following charts, it doesn't take a rocket scientist to work out that we are approaching the trough sooner than expected.
To highlight my points, I have a selection of charts to share.
Sydney’s dwelling values are down 10.1%, equivalent to approximately $116,500, since the city reached its peak value in February 2022 (rising 27.9%). If we take the entire time period from January 2020 (when first reports of Covid hit) to Sept 2022, then we can see that Sydney is still up 12.9% over that time. Next time you look at this chart in three months expect to see the shape of the decline levelling out. This is good news.
According to Tim Lawless, CoreLogic Research Director, property prices would need to drop a further 11.4% to completely wipe out the capital gains seen over the Covid period – which I think is highly unlikely. Prices are likely to plateau over the next few months.
Melbourne is showing quite a different story. With the severe lockdown restrictions, Melbourne’s property prices found reverse gear quite quickly declining 5.7% before rising 17.6% to its peak in 2021. Then since the start of 2022, Melbourne property prices have retracted 6.4% (but over the entire Covid period prices are still up 3.7%).
Brisbane has experienced incredible growth over the Covid period from a standing start with dwelling prices jumping an unprecedented 43.5% but have now declined 6.1%. Since the start of Covid prices are up a net 34% from previous levels.
Another fundamental question that I'm frequently asked is will Australia go into recession given the global economic issues? The simple answer is that Australia is very unlikely to go into recession for the following reasons:
- Our budget deficit is manageable and only around 1.5% of GDP.
- The 2022–23 budget has delivered a better-than-anticipated forecast deficit of $36.9 billion (revised from around $78 billion).
- Total Government debt is still under 30% of total GDP (most other advanced nations are over 100%).
- Inflation is likely to come down faster than expected.
- Migration is ramping up in a massive way – this will help solve chronic labour shortages and get the economy firing again.
- GDP growth is expected to peak at 3¼ per cent in 2022–23 before slowing to 1½ per cent in 2023–24.
The key takeaway here is that our economic issues are vastly different to those in Europe. While the rest of world may enter recession, Australia continues along under the radar with sound economic credentials, a robust lending system and AAA rated banks.
The recent Federal budget last week came up with an ambitious target of 1,000,000 new homes built over 5 years from mid-2024. Why are they waiting a year and half to get going?
A new “Housing Accord” was agreed with the States to free up land and to incentivise institutional and superannuation funds to invest in affordable housing. But I have seen nothing of the policy
detail and how this will be executed - suffice to say the government wants to play a leading role. The Federal Government will also spend $350m to deliver an additional 10,000 affordable homes.
However, there’s plenty of holes to poke in that ambitious policy, namely:
- Capacity constraints in the economy ie. construction costs are very high so the projected rate of builds is likely to be significantly lower than forecast
- There is a massive shortage of primary trades to build the houses
- Limited greenfield land available
- Australia typically builds around 160,000 to 180,000 dwellings a year.The new target will push that forward marginally (goal is now 200,000 pa)
- BUT - for every year that Australia does not build enough new homes to meet demand across the housing continuum, we will see a negative impact on both housing affordability and rental affordability.
And to give you more confidence that our property markets are resilient and holding up well let’s take a look at two more factors – auction clearance rates and net overseas migration.
Firstly, auction clearance rights have been holding steady in the mid to low 60% range over the past two months. This indicates that most properties are selling under auction conditions. Both Sydney and Melbourne have seen a slight increase in the clearance rate and an increase in total auction volumes the past month. We are seeing renewed buyer confidence at auction for well located and nicely presented properties.
In discussions with my team and our extensive agent network we are sensing there will be a late spring surge in transaction volumes. There is still time for vendors to list and take advantage of the market and still time for buyers to purchase and move into their ideal property and be there before Christmas or over the January holiday period.
And one final chart to share with you is the clear sign that migration is ramping back up as well.
If you're still wondering whether now is a good time to buy, then consider this - your borrowing capacity will continue to decline as we see the final interest rate rises occur over the next three to five months. Yet property prices will stabilise and then start to renew the climb upwards once again. Rather than being priced out of the market, if you act now you might find yourself being able to borrow to get into the market.
If you'd like to discuss any of your property plans and get them on track, then please reach out to my professional team of buyers advocates today for an initial conversation. We would be delighted to help.
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or call 1300 655 615