Despite daily media articles declaring that property prices are set to fall 15% or 20% or more, most Australians don’t believe it.
That’s according to the latest Finder Consumer Sentiment Tracker, which sought consumers’ views on the direction of house prices in the next 12 months.
Even in Sydney and Melbourne, where some economists and commentators have declared prices to be falling already, only about 20% of consumers believe prices in their local area will fall in the next 12 months.
In Sydney, 50% believe prices will rise and another 28% suggest there will be no change.
In Melbourne, 56% expect property prices to increase and 25% expect them to stay the same.
Consumers are even more bullish about house prices in Perth, Adelaide and Brisbane. In Brisbane, 63% expect prices to rise and 23% expect no change. Only 14% expect prices to decline. In Perth, 58% expect price increases and 29% foresee no change to house values. Only 13% expect prices to fall.
Those who may be hit hardest by increasing interest rates don’t even own property, according to Domain chief of research Nicola Powell.
Powell says renters are the ones who may really start to feel the strain.
She says there is already a dire shortage of accommodation, with vacancies at rock-bottom levels, and if investors try to pass on all or some of the increased cost of their mortgages it is the renters who will struggle.
AMP Capital chief economist Shane Oliver says, with market conditions so tight and vacancy rates so low, tenants may not have too many other alternative properties to move to if their rent does increase.
“Or if they’d been saving up for a deposit, then it’s now going to be harder for them to buy,” he says.
RateCity research director Sally Tindall says tenants in areas where there are already shortages of rental accommodation may find themselves “throwing more money at rents” to keep their homes.
Westpac agrees with the RBA that the vast majority of its customers can cope financially with the interest rate rises.
Chief executive of consumer and business banking, Chris de Bruin, says the chances of widespread mortgage stress this year are low.
He says customers and businesses were well prepared for rates to lift above what are abnormally low levels.
“Even (the official rate) at 1.5% we are still talking about very, very low interest rates,” de Bruin says.
“I think the important thing to recognise is that we’ve been through a long period of ultra-low interest rates, so this is a natural reversion to some degree.”
He thinks future increases will be steady and affordable to most Australians, although he admits there may be hardship for some borrowers “at the margin”.
Household spending is strong, businesses are generally confident and both consumers and businesses can handle higher rates as it was never going to remain so low for ever.
Interest rate rises may be front and centre for most borrowers at the moment, but the RBA says most households are well placed to absorb increases despite higher costs of living.
RBA governor Phillip Lowe says the June increase of 50 basis points to 0.85% will help bring down inflation over time.
He says RBA data shows households are generally well ahead on mortgage repayments, with financial stress “low and declining”.
According to the RBA many households increased their savings during the pandemic while interest rates were low.
Homeowners with variable-rate loans already have a median 21-month buffer on their repayments, compared with 10 months’ worth at the start of the pandemic.
RBA analysis indicates that even if variable rates were to lift by 200 basis points, more than 40% of borrowers are already making monthly repayments which are large enough to cover those increases.
It says many households have ample time to adjust to future hikes.
Homeowners may be able to take advantage of the competition from smaller banks to negotiate better mortgage rates, despite the Reserve Bank lifting the
official interest rate twice this year.
Mike Gill of PEXA says the RBA increases have resulted in more competition in the lending market, which means good opportunities for borrowers.
While the major banks passed on the full RBA cash rate increase to customers, many non-major lenders chose not to pass it on, to stay competitive and win market share.
“The non-major banks have been successful in winning more re-finances than they have lost in all states so far in 2022,” he says.
PEXA’s latest Refinance Index shows that refinancing has increased in 2022 by 21.5%.
“Property owners are beginning to feel the crunch of higher cost of living due to inflation combined with rising interest rates,” says Gill. “This has motivated many to review their home loan and look for a better deal.”
The building industry is warning of a looming housing shortage as state and local government planning bottlenecks choke the supply of new homes.
Analysis by the National Housing Finance and Investment Corporation warns that as soon as international migration returns to pre-pandemic levels, there will be an even bigger shortage of properties.
It says the number of households exceeding new supply will rise to about 163,400 homes in the next decade.
Mirvac’s Susan Lloyd-Hurwitz suggests a federal productivity payment could encourage the states to boost housing supply.
Tony Lombardo of Lendlease has seen in Singapore how a carefully managed approach to housing and planning can deliver in months what it takes years
to approve in Australia.
“We should have bipartisan support to a 25-year vision that actually says, ‘this is where our corridors are going to grow’,” he says. “Let’s get those mapped out quite precisely, that both sides of politics support, and then facilitate how that gets approved.”
While the Federal Election announcements of new housing policies may impress home buyers, real estate agents don’t believe residential property prices will be impacted by what is on offer.
Industry experts says that, with the election now over, the market is back to a normal routine with plenty of potential buyers turning up to open houses and auctions.
Industry leader Dan White says real estate markets work on confidence and, with the uncertainty of the election out of the way, markets will return to normal.
“On the basis that there will be no more shocks, the market has settled down,” he says. “I see no reason for the outlook to change.”
Real estate identity John McGrath expects an increase in listing activity now the Federal Election is over.
Simon Pressley of Propertyology says the housing policies announced during the election were “boring” but that was not necessarily a bad thing. “Really, the more boring the better,” he says.
The RBA announced a 0.5 percentage point increase in the cash rate this week to bring it to a still low 0.85%.
The move is aimed at regaining control of inflation which economists expect will near 7% by the end of this year.
Inflation is set to rise as the energy crisis continues driving up power on the east coast of Australia and petrol prices continue to climb to beyond $2 a litre.
This week’s rise is the second consecutive increase which has lifted the cash rate from a record low of 0.1%.
Finder’s Graham Cooke says the rise will cost the average Aussie mortgagee about $1,900 a year.
“The average homeowner will see their monthly repayments rise by $159 – equivalent to $1,907 per year from this increase alone,” he says.
Mortgage Choice’s David Zammit says the RBA has sent a clear message it is on a path towards normalising monetary policy and further rate rises
may be required.
The Reserve Bank of Australia says housing market conditions have become more varied across the different Australian markets in the past couple of
The RBA Board says prices, auction volumes and clearance rates have dropped a little in Sydney and Melbourne – but in most other capital cities and in regional areas prices continue to grow as a result of high demand and a shortage of supply.
“Growth in advertised rents had also been particularly strong in these parts of the country, consistent with very low vacancy rates,” the RBA Board says.
With the further lifting of the cash rate this week, it’s more important than ever that property investors do their research to secure assets which are going to increase in value to hedge against inflation.
Many “mum and dad investors” have done quite well in the past two years, the RBA says, with substantial increases in their home equity and significant rent increases as a result of a tight rental market.
The rental crisis isn’t likely to be solved anytime soon, according to Finder.com.au.
Finder’s Rebecca Pike says an increase in rent prices is adding to the already high cost of living, with most tenants experiencing a rental increase in the past 12 months.
CoreLogic figures for April show median weekly rents throughout Australia are 9% higher than they were at the same time last year. Rents in Brisbane are up the highest with an 11% increase in the past 12 months for houses.
However, SQM Research figures show much higher rental increases, with three capital cities up 20% in the past year.
Domain’s Nicola Powell says rents are likely to rise sharply in the coming months as a result of further drops in vacancy rates.
“The current conditions bolster the likelihood of future rent increases and could see lower vacancy rates remain in the coming months,” Powell says.
Domain says there are only 19,715 vacancies across capital city markets at the moment.