The housing market passes the phase of “peak of fear”

According to an expert, Australian property markets have passed their “peak fear” phase and are expected to bottom out in the new year.

Co-founder of the buyer agency network, BuyersBuyers, Pete Wargent, said that despite falling house prices, the worst may be behind us.

“The doomsday scenarios favored by some media seem increasingly unlikely,” Mr Wargent said.

“We have passed the peak of fear.”

Mr Wargent said he expects the negativity surrounding house prices to slowly start to fade.

“The downturn was driven by a combination of weaker borrowing capacity and deeply negative sentiment, but we can expect to see some of the darker headlines fade now, leading us to believe that the ‘fear peak’ has now passed for this market cycle,” he said.

According to Wargent, rising interest rates will continue to weigh on buyers, but this will be offset by an increase in population.

“There is no doubt that the series of interest rate hikes knocked the housing market out earlier in 2022,” he said.

“Naturally, we expect the lower borrowing capacity to impact certain cohorts of buyers, including first-time buyers, some investors, and especially modernizers who are really striving to buy the best home. possible.

“As borders open and permanent migration picks up alongside the return of international students and other temporary visa holders, we expect to see Australia’s resident population grow by one million over the next two to three months. coming years.

“And this at a time when statistics threaten to show builders could go insolvent at the fastest rate on record, hampering supply response.”

Mr Wargent said improved auction resolution rates indicate the market is more balanced, particularly when it comes to high-quality properties in popular areas.

“There hasn’t been a tightening cycle of this pace and magnitude since 1994 – when the cash rate target went from 4.75% to 7.5% between July and December – so most young borrowers have never seen anything like this before, and it had a very big impact on consumer confidence,” he said.

“However, the Reserve Bank’s hike of just 25 basis points this month has had a calming effect on buyer confidence – although there are likely to be more hikes to come, this adds to the overall sentiment. that we are getting closer to the terminal cash rate target for this cycle”.

“After months of gloomy headlines, consumers are finally getting tired of hearing the same old messages and moving on, especially in the absence of a major house price correction, and that’s exactly what many buyers are doing right now.

“At some point, you just have to choose to enter the market.”

BuyersBuyers CEO Doron Peleg said prices in the capital are now about 6% below their peak, according to CoreLogic’s home value index, and the index will still show further declines at come.

Mr Peleg said properties in popular areas continue to see strong demand, while the overall market has become more balanced between buyers and sellers.

“With Australia at full employment, many potential sellers can wait out the recession, given that most landlords have built up significant equity, have large cash reserves and given that rents are rising up to ‘at 20% a year,’ Mr Peleg said.

“Real estate market indices tend to lag because there will always be a lag between offers made and real estate sales settled, recorded and reported.

“Thus, the price indices are likely to show further declines for some time to come.”

“However, the peak of the ‘fear’ phase of the cycle now appears to have passed, and price declines should become less pronounced from here, before being confirmed as bottoming in the new year.”

Mr Peleg said CoreLogic reported the highest preliminary auction clearance rate since May this weekend, helped by improved buyer sentiment in Melbourne and Adelaide, as well as lower inventory circulating. on the market.

“Property prices in Brisbane are seeing some of the speculative excess erased this year, but we have also seen house and townhouse prices rise in many cases,” he said.

“There are still areas of weakness in Sydney, but the removal of stamp duty for first-time buyers up to the $1.5m price in the new year will likely lead to a recovery from the market bottom to the top. .”

Carol N. Valencia