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Positive Trends in Australia’s Housing Market

Australia’s housing market has experienced a significant turnaround in recent months. After a sharp downturn in housing values, the market has seen three consecutive months of growth due to a supply and demand imbalance. This has created an advantageous environment for sellers, with low numbers of listings prompting more competition, leading to higher clearance rates, quicker selling times, and reduced negotiation. Current low listing volumes might tempt prospective sellers to list their properties ahead of the typical spring period when competition heats up. While home values, particularly in Sydney, have been on the upswing since February, the long-term sustainability of this growth is uncertain given the strained state of housing affordability measures.

upward arrow representing the turnaround in Australia's housing market

There’s a surge in buyer activity and urgency in the Australian housing market. Auction clearance rates have been consistently high, indicating strong demand despite traditionally lower volumes. This trend implies that the market is gaining traction rather than slowing down. Sellers are reaping the benefits of improved leverage, as evidenced by quicker selling times and lower discounting rates for private treaty sales. While the fear of missing out (FOMO) hasn’t fully set in, certain buyer groups are keen to enter the market. The persistence of low stock levels, rising clearance rates, and increasing values may amplify FOMO. Furthermore, renters dealing with tight rental markets and strong overseas migration may hasten their buying decisions. The current property pool available to buyers is the smallest in over a decade, further adding a sense of urgency to decision making during the winter season.

Potential buyers in the Australian housing market are grappling with obstacles such as high interest rates and stringent loan assessment levels. Getting loan approval is challenging, with assessment levels three percentage points higher than the interest rates. Additionally, low consumer sentiment levels are putting a damper on the current market enthusiasm, and a significant boost in consumer confidence is necessary to stimulate substantial property activity.

Fluctuating confidence is also tied to economic uncertainty. A decision by the Reserve Bank of Australia (RBA) to slash interest rates would likely bolster consumer morale and encourage more buyer and seller activity. Lower interest rates could stimulate higher housing values. However, the RBA isn’t expected to make cuts in the near future, and there’s even talk of possible rate hikes. Economists’ forecasts vary, with predictions ranging from further rate hikes, stability, to potential cuts later in the year. This uncertainty contributes to low consumer confidence levels. Nonetheless, any dip in interest rates would likely coax more buyers and sellers back into the market.

Homeowners are currently managing their mortgage repayments well, despite expectations of an increase in motivated selling and mortgage arrears. Low interest rates have resulted in 90-day arrears rates hovering around 0.5% to 0.6% at the close of 2022. Homeowners are more inclined to cut back on discretionary spending before defaulting on mortgage payments or selling their homes.

The upcoming Spring 2023 season is set to be compelling. While it’s traditionally a time of increased listings and sales, last year’s spring activity was underwhelming. However, this year, we may see a backlog of potential sellers who have been holding back. If the market remains robust, we could see a vibrant spring with intensified activity. That being said, a significant surge in advertised supply could potentially impact housing values and clearance rates as more properties become available.