Australian Property Market: Homebuyers Struggle as Listings Decrease and Rates Rise

As the Reserve Bank of Australia (RBA) lifted interest rates by another 25 basis points to 3.35 per cent on Tuesday, homebuyers and sellers are feeling the pressure in the Australian housing market. In a buyer’s market, buyers are finding it difficult to find available stock to purchase, whilst vendors are reluctant to sell, resulting in a decline in new listings. This shortage of fresh stock is also impacting buyers’ bargaining power. As a result, vendors who are listing their properties are not lowering their prices as much as in previous downturns.

TL;DR

• Australian housing market faces pressure as interest rates rise and new listings decrease.
• Market fluctuations show new listings have fallen across most capital cities, leading to a lack of competition and negotiation.
• Although distressed sales have fallen, rising borrowing costs are making it difficult for buyers to walk away from negotiations.

Market Fluctuations

As reported in the AFR, new listings have fallen across most capital cities, including Melbourne, which plummeted by 27.8%, Sydney, which dropped by 20.5%, and Perth by 19.1%. Brisbane has fallen by 12.8%, but Adelaide has edged slightly higher, while Hobart surged by 34%. Distressed listings have also fallen by over 4% in Queensland and WA, but the number of old listings has continued to build up, representing 28% of the total market listings, while fresh stock makes up about 20%.

Fewer forced sellers indicate that the housing market is not under great stress so far. As fewer people have a need to sell, there are fewer options, which results in more competition for the properties that are available for sale. This situation has resulted in a market with not much deep discounting, which has made it more muted in this cycle than in previous downturns. In a buyer’s market, vendors may not be willing to accept low offers, resulting in a lack of negotiation and a lack of competition.

Distressed Sales

The number of distressed sales has also fallen over the month, dropping by 3% to 6018 nationwide, with the larger capital cities recording the largest declines.

Nevertheless, the uptick in withdrawals could signal “a worsening in vendor confidence following the more pessimistic inflation outlook and expectation for further rate hikes from the RBA,” according to CoreLogic.

Market Demand

The auction activity will continue to be an important marker for both buyer and vendor confidence, and as we navigate an uncertain interest rate environment, clearance rates and auction activity will continue to be closely monitored. With just shy of 2000 capital city auctions expected, next week will provide a timely test of market demand.

Cross-Currents in the Market

The Australian housing market is one of cross-currents. While some vendors have retreated, others have exceeded their expectations in successful sales. For instance, the downsizing owners of a three-bedroom Crows Nest home on Sydney’s lower North Shore sold their property for $2.91 million, well above its $2.4 million reserve. Six of the twelve registered bidders participated in the auction before a Crows Nest couple claimed the prize.

The AFR reports that the stock levels have been low compared to other years in January, and the late December and January auction activity has not felt much like a buyer’s market, particularly for houses. Cate Bakos, a Melbourne-based buyer’s agent and founder of Cate Bakos Property, states, “Our stock levels feel particularly low compared to other years in January. Our late December and January auction activity has not felt much like a buyer’s market, particularly for houses. We’ve had tough competition at every turn, which is a sign of undersupply and motivated house buyers.”

Conclusion

The Australian housing market continues to face challenges for parties on both sides of the transaction – buyers and sellers.

Sources: AFR.com