Interest rates keep rising and property prices keep dropping. Picture: NewsWire / Gaye Gerard
Uncertainty is a real killer when it comes to Australian real estate.
Changes to capital gains tax (CGT), negative gearing and borrowing through self-managed super funds (SMSF) as well as five interest rate hikes have buyers and sellers sitting on the sidelines, while crippling cost-of-living pressures, higher repayments and dwindling borrowing power all take a toll.
But just how long can this downturn last?
Buyers and sellers are sitting on their hands as uncertainty plagues the market.
Uncertainty around interest rates has been causing hesitation in the market, Ray White chief economist Nerida Conisbee says.
“The big problem at the moment is that we still don’t know when interest rates are going to peak,” Conisbee says. “It is leading to very uncertain buyers and it’s leading to uncertain sellers as well.
“Once we start to see a bit more certainty around the peak for interest rates, that’s the point at which we think things will start to stabilise a little bit.”
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She says prices aren’t likely to suddenly “jump up” at this point, however the start of a recovery could occur, with different markets performing better than others.
Ray White Chief Economist Nerida Conisbee.
“In particular, we think that the more affordable end of the market will take some time to recover, primarily because we do have not only higher interest rates, we’ve also got a big drawback of investors. Investors tend to concentrate at the more affordable end of the market, or have historically,” she says.
“The rest of the market, we think, will recover more quickly.”
Conisbee says the downturn could continue until at least the end of this year.
Downturns have proven to be relatively short phenomena across Australia’s history, Hotspotting founder Terry Ryder says, with this current one likely to be no exception.
“I do think it’s going to be relatively short,” he says.
“It’s never quite as dire or as deep or as long as we’re led to believe.”
He says while the interest rate hikes “haven’t helped”, much of the uncertainty plaguing the property market has followed on from the budget changes to negative gearing and CGT as well as more recent changes to borrowing through SMSF and arrangements around trusts.
Government changes to property tax have created uncertainty in the market. Picture: NewsWire / Martin Ollman
“What stands out for me is that you might expect the activity of investors to drop as a result of all of that, but we’ve seen a drop in the activity of all types of buyers, including those who aren’t directly impacted by the federal budget changes,” he says. “People are just afraid to make a major financial decision for fear that there’s something else going to come out from the federal government.
“So people are sitting on their hands. Vendors are reluctant to sell and first-home buyer activity has dropped quite alarmingly.”
Ryder says not only will the market look for a stabilisation of interest rates before a recovery begins, it will also look for “a few months where the federal government doesn’t make any more changes”.
He says the recovery could occur from early next year onwards.
Mathew Tiller, Head of Research, Economics & Business Intelligence at LJ Hooker. Picture: LinkedIn
While interest rates and the budget changes are affecting people’s decisions around property, other economic pressures are also at play, LJ Hooker head of research and business intelligence Mathew Tiller says.
“I think until there is a clear path to the RBA reducing rates, we’re seeing stability with things like petrol prices and those cost of living pressures begin to ease, the recovery won’t begin,” he says.
“So, that’s probably most likely towards the second half of next year, or towards the end of the first half of next year.”
Fuel costs are still making life hard for Australians.
When the market does recover, will it be spectacular? Another boom to remember? Or will it be a gradual recovery following the year that was?
According to all three experts, the market is expected to undergo a slow and steady recovery, with some areas and segments outperforming others.
Tiller says investors will likely target high-yielding markets, with undersupplied markets such as regional areas likely to outperform others that can lift supply more quickly.
Ryder says affordability will be key following so many interest rate hikes.
What will the recovery look like? Picture: Jane Dempster
“Some markets are still really strong, specifically Hobart, Darwin and regional Tasmania,” Ryder says. “It’s the cheaper cities and the cheaper markets that are doing the best – so, that will continue.”
In contrast, Conisbee says she expects the lower end of the market to take longer to recover.
“When we look year-on-year, it’s absolutely true that on a 12-month basis, places like Ipswich, near Brisbane are recording strong increases, suburban Perth, and a lot of Sydney’s affordable markets are showing strong increases. But if you have a look since the budget, that’s a part of the market that’s now looking weaker,” she says, explaining that a drop in investor activity could lead to “a continued decline in property values”.
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