A client emailed me on Saturday night with the results of their home auction from that afternoon. They weren't the only ones pleased with the result - I was super happy for them. It's been a long-time coming, but they got there in the end, and now onto new adventures!
So what is going on in the property market right now? Here's my take:
Australia's house prices are still gaining, although at a slower pace. July was the fifth month in a row we have seen prices climb, up 0.80% in July. Sydney rose 0.9% while Melbourne grew at a more subdued 0.3%. Remember, these figures are all before the RBA's August decision to pause.
The data tell us that the slow-down is primarily driven by an easing in gains across the upper quartile of the market, while growth in the broad middle market remains resilient. This aligns with housing finance data which has bounced back in recent months.
Historically, premium housing markets tend to lead the cycles, so the slowdown in the pace of growth could be a sign of a broader easing in the pace of growth over the coming months. Here's the latest house values from CoreLogic.
And here's how dwelling prices have changed over the last few years. I still find it hard to believe that -25% falls in national house prices gained so much traction. I mean, take a look below, the national peak to trough was -9.1%.
And here's the weekly asking prices for Melbourne via SQM Research:
We've also seen a rise in new listings over the last month, bucking the usual winter trend. I think there are two key factors here: 1) Vendors believe it's a good time to sell, with strong clearance rates and rising prices. 2) Vendors are getting in before stock levels pick up in spring. 3) Vendors are fed up with loan repayments and are recapitalising their balance sheets.
And there does not seem to be any problem at this stage with the market absorbing current stock levels as we have seen in clearance rates and price rises.
I'm not holding my breath for a September breather in the markers either. FOMO is a real thing. Sure, we may have more listings hit the market, and we could also see a rise in active buyers who have been frustrated with the current rental situation. Rents have increased for 35 consecutive months. And with rental vacancy at 1.20%, we're less than half the 10-year average (2.80%).
The irony in all of this is that buyers are paying more now than they were when interest rates were less than 1% about a year ago. How could this be? According to SQM Research, distressed listings fell by 1.1% in June. The way borrowing works in Australia (unlike other parts of the world such as the US, as we recall during the GFC) means that the home will always be the last line of defense.
The human species have an uncanny way of making things work. And let's not forget, for every seller there is a buyer. So we are these folk on the other end of these transactions, paying higher dollar values when interest rates are at their peak? Australia's population continues to rise, along with migration. But let's not forget the ultra-low unemployment rate and wage growth we have seen. The reason rates have been rising, not only in Australia but all around the world, is because the damn economy has been hot! Rising rates = strong economy, and not the other way around.
As we look ahead, what does the future hold for the property market? I think we'll see a rise in listings in the coming months. I think we'll see prices stabilise. I can't see prices falling at this stage - housing finance is the highest it's been since August of 2022. Inflation has well and truly peaked. Unless of course, we see a sharp rise in the unemployment rate. We'll continue to see strong population growth, and these factors will continue to support prices. And the bottom line is that we have a fundamental undersupply in stock. Period. Until this is resolved, longer-term, it's hard to see the property not doing well.