CoreLogic’s latest Home Value Index shows that consumer sentiment has improved, further interest rate hikes appear to have been ‘priced in’, and the speed at which prices have been falling has slowed so greatly that it looks increasingly likely the bottom of this market cycle is near.
In fact, based upon the emotive language we’ve seen used to describe minor monthly falls in values of late, the rate Sydney’s values fell at last month might in a parallel universe be described as ‘shockingly lethargic’. There, the monthly rate of decline slowed from -2.3% in August to -1.8% in September. We’ve seen smaller adjustments described as ‘horrifying’, ‘in free-fall’, ‘collapsing’ and ‘plunging’!
In Melbourne, the rate of decline slowed from -1.2% to -1.1% in September. Brisbane held up a mirror; its rate of decline slowed from -1.8% to -1.7%. In Darwin, housing values haven’t started falling.
The pace of falling house prices picked up marginally in Perth and Adelaide, but both of these cities were much slower to begin to experience the reversal of fortune being seen on the Eastern Seaboard. Even so, the reduction in values in both cities could only be described as mild compared to other capital cities.
Even throughout country areas where we’ve just started to see prices fall, the pace of decline slowed – but let’s not forget that prices across our regional cities and towns jumped 40% through the pandemic.
Could the bottom of this market cycle be near?
Frankly, it may have already passed. While it’s too early to say, the busy spring season has arrived and auction clearance rates have remained solid despite the increased volume of listings. In fact, clearance rates have been on an upward trajectory since July. When it comes to prices, since they started dropping in April, September produced the smallest declines. When October’s results are in, we may see evidence of reversal in many markets.
Official interest rates are expected to continue to rise but remain historically low, and First National’s agents have seen a 10.4% surge in first home buyers at open homes. Knowing first home buyers have an almost innate sense for opportunity, this would certainly suggest they’re keen to get in before prices start rising again.
Australian household finances vs cost-of-living pressures
One of the reasons that prices have shown such resilience in the face of high inflation & rising interest rates is that household financial deposits have trended strongly upwards since 2005. There was also a period of increased saving during the GFC and COVID pandemic, and the period of lower fuel & electricity prices in 2015 & 2016 boosted the ability of Australians to save. The ratio of housing interest payments to income has also fallen to its lowest levels since 1999, and household debt has trended lower as a proportion of housing values, according to RBA data.
For just under 40% of households, Australians with a mortgage, the interest burden fell to its lowest level in 42 years in the March quarter.
These households will economise while discretionary items like fuel, electricity and food continue to rise but the 30% of households without a mortgage will benefit from higher interest rates, and be able to spend more. With savings at record highs, these households actually prefer higher interest rates.