The Property Market
The Sydney and Central Coast market are influenced by four key factors. As anticipated, property prices have risen by 5% since the beginning of this year. This increase can be attributed to a shortage of available properties for sale, resulting in limited options for buyers. The imbalance between supply and demand has played a significant role. Despite 12 consecutive interest rate hikes, the market has displayed resilience due to the limited stock.
When considering the real estate market in Australia, there are four important factors to keep in mind:
Banking: The banking sector has shown a risk-averse approach, with the continued interest rate increases implemented by the Reserve Bank of Australia (RBA). However, on July 4th, 2023, current mortgage holders received significant relief as the RBA decided to maintain interest rates at 4.10%. The continued interest rate rises are moves that aim to address the current inflation index, which stands at 7%. By stabilizing interest rates, consumer confidence can return to the market. Nevertheless, the language used during the meeting and announcement suggests the possibility of further interest rate adjustments. Rising interest rates can impact the real estate industry by making it challenging for investors to obtain properties with satisfactory returns due to high mortgage repayments. This situation can also lead to increased stock levels as investors sell off their properties, potentially driving down prices. Additionally, owner-occupiers may face difficulties affording mortgage repayments, resulting in the need to sell properties due to mortgage stress. This further contributes to increased stock levels and exposes the market to desperate vendors, ultimately influencing price reductions.
Building Sector: Discussions with local builders and economists indicate that the building sector lags approximately three years behind the demand. This delay can be attributed to factors such as limited material supplies and delays in obtaining approvals from local councils. As a result, buyers are compelled to focus on existing properties, intensifying the scarcity of available stock and driving up prices. Over the past year, several building companies have faced financial difficulties due to locked-in contracts and the extended time required to commence projects caused by council processes. These companies are also susceptible to inflation affecting material costs, which further hinders their operations.
Property: Auction clearance rates have shown consistent improvement throughout the year, with an average rate of over 70%. However, recent slowdowns have been observed during school holidays and the winter season. For instance, last Saturday, 368 properties went to auction compared to 615 during the same period last year. The median house price has risen by 1.3% compared to the previous year, primarily driven by the limited supply of properties on the market. Rental vacancy rates have slightly increased from the record low of 1.3% to 1.5%, indicating a sustained strong demand for rental properties.
Immigration: Australia is expected to welcome 200,000 migrants, with an additional 30,000 visas available for Australian migrants compared to two years ago. The Australian Government has allocated 70% of these places to skilled migrants. This influx of migrants places additional pressure on the Australian real estate market, particularly considering the existing lag in the building sector. Consequently, further price growth is anticipated due to the supply and demand dynamics.
In summary, the market could experience a shift in either direction. If banks and the RBA continue their risk-averse approach, the economy may face challenges, potentially leading to stress selling and an influx of properties into the market, causing a decline in the real estate market. Conversely, given the low supply, increased immigration numbers, and the significant backlog in the building sector, continued growth can also be expected.
