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With warmer weather, gardens in bloom and the desire to be settled in time for the Christmas season, Spring is traditionally touted as the time of year to sell your property. But with consumer confidence waning and the construction industry still facing supply chain strain, will Spring still be prosperous for property this year?
With so much happening economically both in Australia and Internationally, there’s no simple answer – “It’s complex and there’s more to the story than in previous years” says Kristy Caskey, Director of The Property Bureau.
“The spring market usually kicks off in late August, but this year we’re seeing it open more slowly than normal with less stock being listed” Caskey says, “this is more than likely due to interest rate rises and the uncertainty that brings. Sellers are holding back on listing their property until things have settled down and buyers have more certainty around their borrowing capacity. This indicates that the height of the spring market will be later than normal, and it will be strong right through until Christmas”.
For those looking to buy and concerned about budget ambiguity, there doesn’t look to be much interest rate certainty coming in the short-term. The Reserve Bank of Australia (RBA) recently increased the cash rate by 50 basis points to 2.35% and banks will be quick to pass on this increase in full to consumers. In his statement following the August RBA Board meeting, Governor Philip Lowe stated that the path to returning inflation to the preferred 2-3 per cent range over time is “clouded in uncertainty, not least because of global developments”.
Inflation in Australia is the highest it has been since the early 1990s, peaking at 6.1 per cent over the year to 30 June driven domestically by strong demand, a tight labour market, capacity constraints, and floods, and globally due to supply chain issues resulting from COVID-19 as well as the Russia and Ukraine Conflict. One of the only levers the RBA has available to assist with moderating this is to continue to increase rates.
With inflation expected to peak later this year, greater certainty regarding future interest rates may become more apparent over the coming months.
Interest rate increases since May have already had an impact on property sales and prices. In the three months to July, home sales dropped by 16 per cent nationally (compared to the same period last year), weighed down by a 40 per cent slump in Sydney and a 26 per cent decline in Melbourne.
The major banks are predicting that prices will continue to decline into 2023, with Westpac’s August Housing report forecasting home prices to decline nationally by a further 8 per cent, with an overall “peak to trough” decline of around 18 per cent in Melbourne.
The Commonwealth Bank of Australia mirror this thinking, with Head of Australian Economics, Gareth Aird, writing that national home prices will fall around 15 per cent overall, reaching a floor in mid-2023.
Importantly, according to Caskey this isn’t a uniform drop across the entire property market:
“Some price points have been affected more than others and the scarcity of good quality properties has meant there can still be strong competition depending on what type of property you are buying. Buyers are shying away from properties that require too much refurbishment or renovation work and are opting for properties that are ready to go. This is due to the shortage in labour and the cost of building since the pandemic.”
This can be seen as recently as the weekend where a riverfront property in Kew sold for $5.1 million, $1.6m above the reserve. With clearance rates in Melbourne remaining above 55 per cent for the third week in a row, perhaps the Spring season is slowly taking pace.
Looking into the New Year, Caskey is hopeful that we will see higher stock levels and prices stabilise as interest rates plateau and buyers feel more confident in their financial position.
As with any long-term investment, doing your due diligence and paying an appropriate price is key to long-term success. Property can be an incredibly emotional investment, so partnering with a trusted adviser can ensure you have a balanced perspective and are supported through the process.