Cash rates and consumer sentiment to define Australia’s chilly months

With winter looming, what do the market’s performances in key metrics indicate about how it will fare in the coming months?

Decade-low listing numbers have sucked competition from the Australian property market with selling conditions massively improving, exemplified by national clearance rates consistently holding above 70 per cent to begin the year, selling times quickening, and less negotiation required to achieve a sale, according to Mr Lawless.

“When listing volumes are very low, selling conditions strengthen, which means potential vendors thinking about selling may well be tempted to list now rather than waiting until the traditional spring period,” he said.

While listing levels have been low in the lead up to winter, strong selling conditions have coincided with a strong start to the year in the nation’s auction market, which has seen clearance rates holding at 70 per cent or higher.

Mr Lawless believes the strong performance of the Australian auction market “coupled with the upward pressure on housing values, these signs suggest, if anything, the market is gathering momentum rather than slowing down”.

However, the upward trajectory of national home values, which has seen CoreLogic’s home value index (HVI) increase in recent months, is, in the research director’s eyes, “surprising and probably unsustainable,” especially when considering that “housing affordability measures remain stretched.”

As the doonas get dusted off and woodfire chopped and stored to prepare for the colder months, Mr Lawless believes several headwinds will ensure Australian property’s winter won’t necessarily be classified as smooth sailing.

Despite offering the nation a slight reprieve with a cash rate pause in April, the RBA reactivated its rate hiking cycle earlier this month, lifting the official figure to 3.85 per cent, leading many to question whether Australia’s central bank would finalise the cycle before the nation is knocked into a recession.

CoreLogic’s research director said, “an ability to service a loan is going to be one of the biggest hurdles that prospective buyers will face this year”.

This is especially true given that not only are interest rates high, but assessment levels, which were recently criticised by CANSTAR, remain higher.

And while qualifying for a loan is one challenge, he believes “we can’t ignore low consumer sentiment levels, which will also be having some dampening effects on the market’s current exuberance”.

Additionally, he explained that “we shouldn’t expect to see a material lift in property activity until there’s an improvement in consumer confidence more broadly”.

But should the RBA move to cut interest rates during winter, or in fact any season beyond, Mr Lawless expects both consumer spirits as well as buyer and consumer activity to increase.

“Logically, lower interest rates would be the catalyst for a further uptick in housing values,” he added.

However, he noted economists are split on their positions regarding whether any further cash rate increases will be enacted in future RBA board meetings, a factor Mr Lawless believes is further fueling the uncertainty fire plaguing the Australian property market.

Mr Lawless expects this coming spring to be “interesting”, especially considering its position as the historical season for new listings and sales transactions, although that trend didn’t materialise last spring.

With this in mind, he predicts “there’s possibly some accrued supply building up from people who have been thinking about selling but holding back, and if the market remains relatively buoyant, we could see a very active spring this season”.