The Property, Political and Economic Tectonic Plates are Shifting

RBA takes action as housing market continues to fall

It's been a news-packed month for property market watchers, with the cash rate increase, inflation figures and federal election campaign kicking off.

The year began positively with home values holding. Although the market has receded since the peak in October 2021, we are still ahead of pandemic values as a whole.

In April, 3 capital cities saw no growth, with prices falling the hardest, surprisingly, in Hobart. In Melbourne, housing values remained flat but fell by -0.1% in the past three months. Advertised property listings notched up by 3.7%, however this is normal given the extremely low supply seen during the extensive lockdowns.

Looking at the market at a more granular level, it is the top end and inner-city suburbs of Melbourne and Sydney that are being hit first. Half of the properties analysed by CoreLogic in the Melbourne market recorded a slip in values in the first quarter of 2022. After years of consistent growth, 295 neighbourhoods recorded a fall in values across Melbourne, while 8 suburbs remained unchanged. The impact was most pronounced in Cremorne, where prices fell by 6.40%. Declines appear to be focused on the inner and inner east. 

The market is seeing these changes due to the fixed rate changes, affordability constraints, and an increase in supply in the first quarter. 

Mr Lawless from CoreLogic called it the “early stages of a downturn”. He also said that although the bottom end of the market is holding up, it is likely to follow the trend of the inner-city later this year.

It’s easy to get distracted by the short-term figures but what’s important to remember is that although we are experiencing a downturn now, our housing values are still well ahead of pre-pandemic figures. Zooming out, housing values across the country have increased by 26.2% since COVID first began - this represents an approximate $155,380 boost to the median value of an Australian dwelling. In the past year, prices are 16.7% higher, and the upper 25% market tier still recorded 10.9% growth on pre-COVID times. 

While the level of supply appears to have lifted, market watchers need to be careful when looking at data during COVID-19. Last year’s results were underpinned by pandemic-curtailed supply, as homeowners were reluctant to list their properties on the market amid the uncertainty. The black swan of COVID-19 can create a false impression of the market.

Micro Market View

When we look to values, the economic equation of supply and demand underscores the state of play. In recent times, agents and sellers have faced logistical hurdles, affecting supply. They include:

• The Easter break & school holidays
• ANZAC weekend
• Labour Day long weekend (VIC)
• The Federal Budget & election campaign

This means that sellers who are not pressured are waiting to begin their campaigns after these hurdles. We are seeing lower levels of supply mainly because stock is not being replaced. The lower supply is possibly holding up the market now and we may see a more significant retraction in values. We can expect supply to lift after these temporary hurdles.

Currently, quality properties – those that are not compromised – are selling well. Properties with glaring issues or even those that are compromised in some way either remaining on market, are being withdrawn, moving to the rental market or having their prices adjusted to the market.

In a changing market, even though the current value changes are not significantly large, the success of a sale relies heavily on an agent’s skill set, namely effective communication and negotiation skills. A downward market shift highlights the importance of having an agent that can buy or sell strategically and communicate effectively, as opposed to engaging an order-taker. This is where the skill set of a professional agent is paramount for a vendor.

The Budget: long-term economic growth vs. short-term re-election initiatives

With the federal election campaign in full swing, a huge focus of the Budget this year was placed on easing the cost of living through tax cuts and one-off stimulus payments. Aside from these, the Federal Budget also made major announcements underpinning the property sector, which is tipped to drive demand in the market. The key initiatives were:

Increase in New Home Guarantee spots

• Allows first-home buyers or regional property buyers to purchase property with only a 5% deposit (or 2% for single parent households) 
• Eligible buyers can take out a home loan without the need to pay lenders mortgage insurance (LMI)
• From 1 July 2022, 35,000 New Home Guarantees will be made each year - up from the current 10,000.

Increase of First Home Super Saver Scheme (FHSSS)

• Allows people to voluntarily contribute up to $30,000 to their super fund and withdraw this amount to buy their first home. 
• From 1 July 2022, the amount increases to $50,000.

Supporting migrants and employers through COVID-19

• Relaxing of 40-hour working weeks for international students
• Relaxing of working holiday parameters
• Priority migration for those specialising in the skilled occupation list

The above migrant and working changes underscore the demand for property both in the investor arena, represented as tenant demand, but also flow onto buyer demand by way of investors re-entering the buying market in response.

Economic Snapshot

Implications to the economic outlook

Our economy has demonstrated resilience following the pandemic-induced recession of 2020. The budget’s short-term cost of living measures, coupled with the longer-term commitments to various business sectors, reflects the government’s commitment to a strong economic recovery. The unemployment rate is expected to tip below 4% later this year which, as a metric, augurs well for the economy.

The government walks a fine line between overstimulating the economy and watching inflation soar. As we saw this week and in our everyday lives, the impact of growing inflation is far-reaching, with the cash rate rising by 25 basis points in the May RBA meeting. And it didn’t take long for the banks to move. By Wednesday morning, all major banks had confirmed a policy change in response to the RBA’s decision.

Interesting to note, Macquarie’s Global Head of Strategy, Viktor Shvets, forecasts that rates will come back down again within 12 months. Viktor argues that “disinflationary outcomes are more likely into 2023 and 2024 rather than inflation.”

It is safe to say we are entering a period of change and possible uncertainty. When this has occurred in the past, such as during the GFC, statistics have shown that property sales move offline, with increases as great at 40% in some suburbs. This is what we excel at - the off-market opportunities for our clientele. These opportunities are borne from extensive and deep relationships forged over 30 years.

Call the team to navigate you through a changing market.