Insights on Mortgage Repayments and the Future of Prices
Weekly Real Estate Market Update with Leigh Martinuzzi MPG
In the recently released June quarterly market newsletter, I take a closer look at the current state of the Australian housing market. While national housing prices have experienced a -5.3% decline over the past 12 months, there are signs of improvement and resilience in the market. This blog post provides an overview of the key factors impacting the market, including the rebounding housing prices, the impact of rising cash rates, the potential for distressed sellers, and the underlying demand driving the market. Please download your free copy here.
Despite the overall decline in national housing prices, there are indications of a rebound. Capital city prices have experienced a slight increase of 0.06%, according to a recent article. The combination of a growing population and a record-low number of properties listed for sale, which is currently 32.9% below the 5-year average, has contributed to the resilience and even growth of housing prices in certain parts of Australia.
The Reserve Bank of Australia (RBA) recently held the cash rate, leading to increased buyer interest and attendance at open homes. However, there remains a sense of depleted buyer confidence due to uncertainty surrounding future rate rises. Leading economists predict a further rate rise in August and if note then, 100% saying it will happen in September. And 60% of them suggesting the possibly another later in the year. This anticipation has caused hesitation among buyers, impacting buyer sentiment. The potential for mortgage stress and reduced borrowing capacity for buyers could further influence the market dynamics and property prices.
There has been speculation about a potential flood of new property listings from distressed sellers in the coming months. The increased interest rates have put pressure on homeowners and investors, affecting their household income. While some sellers may choose to sell and find rental accommodation, the impact on property prices may not be as severe as expected. The Australian economy remains stable, with low unemployment, higher inflation rates, and rising home loan approvals. Additionally, the demand for housing continues to outstrip supply, suggesting that even with additional stressed sales, the market will remain strong.
Despite the concerns over rising interest rates, buyer demand for housing remains robust. Auction clearance rates, which have increased by nearly 20% compared to the previous year, indicate sustained demand. Home loans have also risen by 4.8% in the past month, signalling continued buyer interest and confidence. New listings are still below average, down 30% on this time last year, indicating limited supply in the market (see chart below). Rental prices are stabilising, albeit at relatively high levels. With current interest rates, a $500,000 mortgage would result in monthly repayments of approximately $2,867. Comparing this with median rental prices, the rental fees are almost equivalent to mortgage repayments. It’s important to note that these figures are based on median prices and lower mortgage rates, which may not be easily attainable in certain areas. However, the comparison highlights the relative affordability of owning a home compared to renting, considering the current market conditions. These factors, coupled with a surge in home buying aspirations among millennials and Gen Z, contribute to the ongoing strength of the market.
The Australian housing market is experiencing a period of rebound and resilience, despite the overall decline in national housing prices. While rising interest rates have impacted buyer sentiment and may result in some distressed sales, the strong demand for housing and supply shortage are likely to keep the market stable. The majority of Australians are not severely affected by the rate rises, as they have benefited from previous price surges. However, a smaller portion of the community may feel the pinch of rising rates. With all factors considered, it is reasonable to suggest that the market prices are unlikely to decline significantly from current levels.