Market Momentum & Migration - October 2022
October 13, 2022 / Written by Rich Harvey
Toward the end of 2021, property markets were riding high off the back of an incredible 12 months. There had been plenty of transactions at exceptional prices and vendors were considering whether to sell before Christmas or wait a little longer to maximise their results.
But come early 2022, things got a bit tougher for sellers. Construction cost increases, supply line delays, international conflict, and political upheaval all stifled buyer enthusiasm.
Then the Reserve Bank of Australia (RBA) started up the interest rate train. In response to rising inflation the RBA increased the cash rate in May by 0.25 per cent, then 0.5 per cent a month later. This monthly ratcheting up of rates continued and the property space quickly flipped into “buyers’ market” mode. This led to a retraction in median prices across some of our biggest markets.
But, of course, human nature is a funny thing. When markets were rising quickly, stakeholders became convinced that the increases would last forever. Similarly, as the market has softened everyone now believes the downturn is entrenched, with no sign of recovery.
So, buyers are now holding off on their purchasing decisions.
People have their loan pre-approvals but are not concerned about transacting in a hurry. They’re convinced the market will fall even further. Buyers are putting the onus on the selling agents to come back to them with prices rather than competing to be the last offer standing.
And while there are some economists predicting critical falls in values over the coming year (many of whom also forecasted a downturn in 2020 and 2021), I strongly beg to differ.
You see, I don’t think we’re in a dead market – I simply believe last year’s momentum has slowed.
So, what will get purchasers transacting again?
Well, I believe a few things on the horizon will see demand skyrocket, and if buyers don’t act soon, they may miss out altogether.
Two big shifts
The first factor to consider is interest rate rises and the RBA’s most recent moves.
While the 0.25 per cent increase in October was admittedly still and increase, it was half of all previous monthly increases since June.
This demonstrates the RBA is taking a more even-handed approach to the increases. They’re waiting to see if inflation is slowing on the back of their previous moves.
This signals we may be approaching the peak of rate increases. In fact, if the cash rate went up by another 1.0 per cent – which would be massive under current settings – we’d still only be at May 2012’s figure. People had no problem borrowing money back then.
I suspect buyers will get comfortable with the current state of play and begin to feel better about their buying and borrowing situation. That will be the first thing to shift the needle.
But there’s another big factor which is about to wash through our market and create steamrolling demand… and that’s migration.
No one is thinking realistically about migration versus the scarcity of Australia’s housing stock.
Europe’s food and energy supply is under enormous pressure because of Russia and Ukraine. The quality of life no longer exists on the continent. Countries throughout the Middle East, UK and African will see their white-collar professionals migrate to Australia. We offer high salaries and an enviable lifestyle in comparison.
ABS numbers show immigration is currently running at approximately half its annual pre-COVID figure of 240,000 to 250,000 arrivals. But our government is keen to welcome immigrants back with open arms to fill job vacancies. The permanent migration intake has been lifted from 160,000 persons to 195,000, and temporary visa numbers are also set to increase by tens of thousands.
In short, we will be back to 240,000 new arrivals per year before you know it… and they’ll be landing in the middle of the greatest Australian rental crisis in living memory.
Our housing stocks are entirely unprepared for the immigration wave that’s about to crash on our shores. The demand for shelter in Australia is about to boom, and anyone who doesn’t already own a home or investment is at risk of being priced out of the market.
So why aren’t buyers acting? Well, everyone seems convinced the bad times will go forever – but experience and analysis tell me they won’t.
The smart money is drawing on the expertise of independent professionals and acquiring property that will deliver great benefits in accommodation and lifestyle right now.
My advice is don’t hesitate, because I firmly believe you will regret your inaction as we roll into 2023.
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