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Spring market gives investors a fresh reality check
Spring selling season is off to a weaker start, but what does the softer market mean for investors as buyer demand, listings, and borrowing conditions evolve?
The first week of spring has delivered a drop in auction activity, with volumes across the combined capitals 31.1 per cent below the same week last year.
Cotality economist Annabelle Mezieres said the usual lift in listings and auctions through spring and early summer was expected to be more subdued this year as falling home values and more challenging selling conditions weighed on activity.
“Given the weak trend through winter and the persistent shortfall in auction volumes compared with last year, the spring season is expected to be less active than what we have seen over recent years,” Mezieres told SPI.
Across the combined capitals, Cotality data showed 1,462 homes were auctioned in the week ending 7 September, unchanged from the previous week and the fourth consecutive week in which they remained more than 30 per cent below year-ago levels.
Despite the weak start, the preliminary clearance rate remained steady at 52.7 per cent, only slightly above the previous week’s 52.4 per cent and the winter preliminary average of 52.3 per cent.
Mezieres said the next few weeks would be a good indicator as to where the market is heading, whether buyer demand could absorb the expected increase in spring auction activity.
“For instance, if clearance rates remain stable as auction volumes rise, it would suggest that buyer demand is present and vendors have adjusted their price expectations to meet the market.”
“If clearance rates start to reduce, it may suggest that spring listings are outpacing demand.”
Vendors remain cautious as buyers stay selective
Mezieres said the softer start to the spring selling season suggested both vendors and buyers remained cautious.
“Seeing as we have moved through five consecutive months of a national home value decline, vendors will naturally become more cautious as falling home values discourage them from listing their properties.”
She said vendors appeared less willing to test the market than they were a year ago, with the flow of new listings nationally down 3.1 per cent and 6.4 per cent compared with last year and the five-year average respectively.
On the demand side, Mezieres said buyers were still present but remained selective, with auction volumes consistently below year-ago levels since mid-May.
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She said affordability pressures, serviceability constraints and weaker confidence were making buyers more price-sensitive and less willing to stretch their budgets.
This was particularly the case as inflation remained well above its target, with economists and financial markets now forecasting another RBA rate increase this year.
“For the buyers who have the confidence to transact, they benefit from a wider selection of stock, great negotiation power and less urgency,” Mezieres said.
Total listings were now roughly 18.1 per cent higher nationally than they were a year ago and approximately 2.2 per cent above the five-year average.
Mezieres said subdued vendor activity and selective buyer demand could explain why auction volumes were significantly lower than last year while clearance rates remained low but relatively steady.
Auction activity was nevertheless anticipated to lift over the coming weeks, rising to around 1,640 this week and 1,900 next week.
What spring could mean for investors
For investors, Mezieres said the balance between buyer demand and the expected seasonal increase in listings will be an important indicator of how market conditions develop through spring.
“I think investors will be watching indicators of buyer demand; whether home sales and lending activity rise enough to absorb the seasonal lift in listings we are expecting to see.
Similarly, she said that clearance rates, new listing volumes and the trend in home values will be important signals that investors should monitor over the spring selling season.
Private treaty conditions will also be important to watch, she said, with longer selling times and larger vendor discounts providing a potential signal of whether the market is beginning to stabilise.
“Any sign of these metrics peaking out or improving could be a signal of the market stabilising.”
Additionally, she said the broader economic outlook will also remain important, particularly the path of inflation and its implications for interest rates.
“From a macroeconomic perspective, the path of inflation will be a critical indicator.”
“If core inflation remains stubbornly high, the chances of interest rates holding higher for longer have the potential to keep housing activity subdued.”
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