For the first time since 2020, Australia’s spring-selling season will be unhampered by the COVID lockdowns — should sellers expect a surge in buyers?
While there are reasons to be excited in what is typically the busiest season of the year for the property market, this year is going to be different as the market navigates the conditions of rate hikes, inflation surge, and the overall slowdown in the housing market.
According to Domain Research, sellers who are pricing their homes to meet buyer expectations are still achieving quick sales, despite the overall market being challenging.
Many property owners experienced a healthy equity gain over the past two years, with house prices across capital cities sitting 32.4% above the trough in June 2020.
Impact of rates likely to be tested
One of the unique conditions in the market heading into this year’s spring is the upswing in interest rates.
Over the past few months, the market already manifested a slowdown as an impact of the rate hikes by the RBA, with price growth decelerating across all markets.
“The transition from winter to spring will see a lift in new listings and an emergence of more buyers — the rise in properties for sale will test the number of active buyers and whether sellers are meeting market price expectations,” the Domain report said.
“This will be the first real test of the property market since interest rates started to rise.”
It will be interesting to see how buyer demand this year would compare to last year when markets achieved their peaks.
Domain data showed that the pent-up demand due to the 2020 lockdowns has resulted in buyer activity surging in March 2021.
When lockdowns struck again in winter 2021 across many locations, the succeeding months saw a bumper in activity, with the Domain’s Buying Demand Indicator recording a peak in October 2021 across capital cities and regional markets.
“Across all capital cities and regional Australia, buyer demand hit a high in 2021, apart from houses and units in Perth and units in Adelaide, which peaked later in 2022. This is consistent with a period of booming prices, elevated demand and dwindling supply,” Domain said.
Since this peak, however, the market moderated as wages struggled to keep up with rising inflation and the boom in prices.
This was exacerbated by the typical winter lull — currently, demand is 32.6% lower for houses and 27.7% lower for units compared to their peaks.
Housing and unit markets in Sydney, Melbourne, Brisbane experienced a lower level of demand throughout the winter 2022 than the three-year winter average. The same happened in the housing markets of Hobart and Canberra.
“This aligns with the broader downturn in the property market with the higher cost of debt and inflation damaging borrowing capacity, which also negatively impacts housing demand and price,” Domain said.
“Reduced competition among buyers and more properties for sale have driven the decline in demand overall and throughout winter.”
On the other hand, buyer demand for both houses and units remained high in regional Australia, Adelaide, and Perth.
Buyers seeking out units
Another interesting trend is the apparent shift towards units due to affordability.
Since mid-2020s, demand indicators for houses across capital cities had been higher than units, with the gap reaching a record high in January 2022.
As the affordability of houses worsened the demand gap has consistently narrowed since.
In fact, demand indictors for units are now higher than in houses in Brisbane, Canberra, Darwin, Hobart, and Perth.
While housing demand indicators still trump units in Sydney, Melbourne, and Adelaide, the gap continues to narrow.
Over the June quarter, units in capital cities posted a 0.1% increase in median price, outpacing the houses’ 0.9% decline.
“The stronger performance follows a period of substantial outperformance of house prices, which rose 34% from trough to peak during the pandemic, while unit prices rose only 10%,” Domain said.
“Higher interest rates and living costs, as well as affordability, could play a larger role in the decreasing demand for houses — the relative underperformance of units during the pandemic boom and value proposition could place a floor under demand.”
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Photo by Stanly8853 from Pixabay.
