Is the ‘peak fear’ phase over for the housing market?

The central bank’s rapid-fire interest-rate hikes have pumped up the country’s official cash rate over a five-month period from a historically low level in May to 2.35 per cent in September — the highest level in seven years. 

“Naturally, we do expect lower borrowing capacity to impact some buyer cohorts, including first home buyers, some investors, and particularly upgraders who are really stretching themselves to buy the best home they can,” he professed. 

As inflation continues to be above the RBA’s two-to-three target, most experts predict that the central bank will continue to frontload its rate hikes in the coming months. 

“There hasn’t been a tightening cycle of this pace and magnitude since 1994 — when the cash rate target went from 4.75 per cent to 7.50 per cent between July and December — so most young borrowers have never seen anything like this before, and it had a very significant impact on consumer confidence,” he explained. 

But he pointed out that the slowing of rate hikes in October, which saw the RBA scale back its rate hikes from 50 basis points to 25 basis points, adds to the argument that the upcycle is nearing its end.

“[This] month has had something of a soothing impact on buyer confidence — although there will likely be further hikes to come, it does add to a general feeling that we are getting closer to the terminal cash rate target for this cycle,” Mr Wargent said.

In addition to dissipating concerns about the RBA’s rate hikes, Mr Wargent pointed out that people are now fed up with the hackneyed doom-and-gloom predictions parroted by market commentators. 

“After months of gloomy headlines, eventually, consumers tend to tire of hearing the same old messages and move on, particularly in the absence of a major property price correction, and a lot of buyers are doing just that now. At some point, you just have to choose to get into the market,’ Mr Wargent said. 

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

“The downturn has been driven by a combination of lower borrowing capacity and deeply negative sentiment, but we can expect to see some of the gloomier headlines tailing off now, which leads us to believe that ‘peak fear’ has now passed for this market cycle,” he said.

BuyersBuyers chief executive Doron Peleg concurred with his colleague’s observation, stating that while further price pullbacks are expected, there are signs that a rebalancing is occurring in the market. 

He pointed out that despite CoreLogic’s data showing that dwelling prices in capital cities are now 6 per cent below their peak and with more declines predicted in the coming months, there has been a steady and consistent improvement in the auction clearance rate.

Drawing from their firm’s data and case studies, Mr Peleg surmised that the market has become more balanced between buyers and sellers, particularly when it comes to high-quality properties in popular areas that see high demand. 

He also pointed out that when it comes to being equipped with real-time data, investors and consumers should not focus on indices. 

“Property market indices tend to lag, because there’s always going to be a delay between offers being made and property sales being settled, recorded, and reported — so price indices will likely show further declines for some time to come yet,” he explained.

He also noted that CoreLogic auction figures, which show the highest preliminary clearance rate since May, is one indication of improving buyer sentiment, particularly in Melbourne and Adelaide.

“Brisbane’s house prices are seeing some of the speculative excess wiped away this year, but we’ve also seen unit and townhouse prices rising in many cases,” he said.

And while bigger markets are still struggling to get back on their feet, he pointed out that the NSW capital is positioned for a rebound. 

“There are still some areas of weakness in Sydney, but stamp duty being scrapped for first home buyers up to the $1.5 million price point in the new year will likely see a recovery driven from the bottom of the market up,” he said.

Under the First Home Buyer Choice scheme, which is scheduled to start in January, first home buyers will be able to choose between an upfront payment or a smaller annual property tax. 

Under the tax reform, eligible first home buyers will have the choice of a traditional upfront payment or a smaller annual property fee for properties with a purchase price of up to $1.5 million — which the NSW government estimates will qualify around 84 per cent of residential properties in the state. 

In Melbourne, Mr Wargent noted that buyers are starting to come around after being spooked by the interest rate hikes. 

“[The] market has been a little segmented recently, but speaking to our buyer’s agent and industry connections in Melbourne shows that well-presented properties are garnering plenty of interest, and even competitive bidding in some cases,” he commented. 

On another positive note, Mr Wargent said the opening of Australian borders bodes well for the property market.

“With the borders open and permanent migration ramping up again in tandem with the return of international students and other temporary visa holders, we expect to see the resident population of Australia increase by a million over the next two to three years,” he said.

Looking further ahead, Mr Wargent predicts that the government’s decision to lift the annual permanent migration cap to 195,000 will also lead to a record-breaking surge in immigration figures over the next couple of years, which in turn will result in a fresh wave of demand. 

Mr Peleg also highlighted that the country’s economy remains in a sound state and will continue to underpin the property market. 

“With Australia experiencing full employment, many prospective vendors can wait out the downturn, given most owners have built up significant equity, have substantial cash buffers, and given that rents are rising by up to 20 per cent per annum,” he stated. 

With the downturn expected to bottom out next year, Mr Wargent concluded that “the doomsday scenarios favoured by some media outlets are looking increasingly unlikely.”