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Is the booming housing market party winding down? If the recent falls in auction clearance rates are an early indication, the answer is yes.
We are a long way from calling this a buyers’ market, but a sharp deterioration in clearance rates – the percentage of properties that go to auction that are sold – is an early signal that over the past couple of weeks, buyers have developed the yips.
In the past two weeks, clearance rates have significantly weakened and in the major markets of Sydney and Melbourne, prices are struggling to move up.
At the start of the year, many economists were expecting home values to rise by 7 to 10 per cent this year, but these robust predictions are dissolving in real time.
In February, home values in Sydney were flat, but given the lift in rates and a rise in new listing numbers, there is a good chance Sydney values could be down slightly by the end of this month, according to property research experts Cotality. And Melbourne prices have struggled more in recent months, even though they didn’t move last month.
There has been a strong gain in the number of properties being marketed. Last week it was up 58 per cent on the previous week, in a sign that sellers are scrambling to get their properties sold.
Some of this spike in auction activity can be attributed to the timing of long weekends in a couple of markets, but even after adjusting for this influx of supply, the trend in the number of auctions is strong, up 16 per cent compared with this time last year.
Buyers, however, have been struck by a perfect storm of uncertainty around interest rates and the spectre of changes to government tax policy that will affect housing demand.
A war with no set sunset clause, an oil supply crisis and its surging price have ignited even greater inflation fears.
Economists who had previously predicted the Reserve Bank would take a breather this week and hold rates are capitulating by the day, leaving the market odds on for interest rates to move up.
Even Treasurer Jim Chalmers predicted that higher oil prices could push Australia’s inflation to close to 5 per cent, depending on the duration of the war. Such an outcome would prompt an even more draconian interest rate response from the RBA.
Every visit to a service station provides consumers with a sharp reminder of the impacts of the war in the Middle East.
The government’s mulling of changes to capital gains tax concessions is also spooking house buyers, particularly the investor group, which has been particularly strong over the past year.
Morgan Stanley noted that similar government policies had been proposed ahead of the 2019 election, and that they led national house prices to decline by 10 per cent even without any change in the cash rate from the RBA.
Sellers clearly see that the window to achieve a maximum price is fast closing.
“The pick-up in new listing numbers is partly seasonal but also probably reflects an element of vendors aiming to get into the marketplace before selling conditions potentially worsen as interest rates rise and buyer demand reduces,” said Cotality research director Tim Lawless.
Cotality expects similarly strong numbers of properties to be placed on the market this week and for this to ramp up again in the lead-up to Easter.
How this plays into the residential property market over the remainder of the year depends on a number of factors, including the length of the Iran-US war.
But even without the complications of this conflict, inflation in Australia was already higher than the RBA’s comfort zone.
That said, and while many of the conditions for a fall in the property market are in place, predicting movements in the value of homes is precarious. Our love of home ownership is the X factor that ignores conventional measures.
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