Home Sellers Warm To Winter Market

The weather may be cold, but the property market remains hot, with June recording the busiest start to the winter market in more than a decade.

PropTrack’s monthly Listings Report for June shows the number of new property listings are up by 8.5% compared with the same time last year.

PropTrack economist Angus Moore says interest rate rises and cost of living pressures have done little to dampen the market.

“There has been a brisk pace of new listings, with more new listings nationally across the first half of the year than during any year since 2015,” Moore says.

He says traditionally buying and selling activity slows in winter, but this year it has remained robust in many markets.

Sydney new listings are 1.3% higher than the same time last year and Melbourne is up 0.5%, while Canberra listings are up a massive 32%.

New listings on realestate.com.au throughout Australia are 8.5 %, making it the busiest June since 2011.

Migration Lift Will Increase Rents

Plans to increase migration into Australia could cause rents to increase further.

CoreLogic Head of Research Tim Lawless says the market is already experiencing dramatic rent increases as a result of a national vacancy rate of just 1%.

With the Federal Government indicating it wants to fill labour shortages by increasing migration, Lawless says this will put further pressure on the
rental market.

“Migrants traditionally move straight to the cities and they move first to the rental market,” he says.

“It’s the factor still missing in the residential sector even with the rebound in rents.”

He says the rental market nationally was subdued for almost a decade but that has now dramatically changed.

“Now the wheel has turned, we are seeing rental yields climbing very quickly. Falling house prices and rising rents are an unusual combination – in cities such as Sydney rental yields had dropped near 2%, we are now seeing them climb towards 3% and they could get to 4%.”.

Loan Stress ‘Materially Overplayed’

Speculation that rising interest rates will force a number of borrowers to default on their mortgages is “being materially overplayed”, according to Citi

Analysts Brendan Sproules and Akshat Agrawal say above-median household incomes are giving borrowers better financial flexibility to meet repayments, despite the RBA increasing the official cash rate to 1.35%.

S&P Global Ratings analyst Erin Kitson says mortgage arrears are at historically low levels and she doesn’t expect a significant increase in defaults, “given a strong labour market and the buffers built into serviceability assessments”. Kitson says borrowers built up their savings during the pandemic as well as their repayment buffers and they will use that to help absorb higher mortgage repayments. “While savings buffers have been declining from their pandemic highs as the economy has reopened, they remain above the long-term average of 5%,” she says. Sproules and Agrawal say while there is no doubt Australia property is expensive and mortgages large, most borrowers can still meet repayments.

House Build Cost Jumps $94,000

The cost of building a house has jumped $94,000 in the past year, as a result of rising material costs.

Analysis of Australian Bureau of Statistics building approval data shows the average price of a new house in May was $413,436, up from $319,259 in February 2021.

HIA chief economist Tim Reardon says building approval numbers continue to surge, as well as the costs.

“We are looking at the fastest rate of growth in the average cost of an approved house build since 1982,” he says.

Victoria is building more new houses than any other state. It had a $32,000 increase in the cost of a typical home between March and April this year.

Reardon believes cost increases will start to slow as the number of new homes built drops from 150,000 in the past year to about 108,000 by 2024-25.

But he warns the next 12 months is likely to be the second fastest growth period in the past 40 years.

Borrowers Refinance For Lower Rate

The number of mortgage holders refinancing has surged following recent interest rate rises.

Refinancing of existing loans has increased 17% in the past few weeks, while all lenders are reporting very strong levels of inquiries about refinancing.

Borrowers are being encouraged to review their interest rates annually to ensure they get the best deal going.

Comparison websites Canstar, Compare Club and RateCity are some of the better-known websites through which borrowers can assess what other rates are on offer.

Experts advise the first step mortgage holders should take is to contact their existing bank and speak to its retention team.

Advising the retention team that you want to refinance your loan with another lender but want to give them the opportunity to give you a better rate, is often an effective way to secure a better deal without having to change lenders. Depending on your type and value of loan, most lenders will offer some level of discount to keep a customer.

Unit Demand Puts Pressure On Shortage

New figures show the number of potential buyers looking at apartments has increased in the past year as buyers chase affordability.

Figures from realestate.com.au show a significant increase in searches for apartments in the year to June 2022. Brisbane recorded the biggest increase of 60%, followed by Melbourne 53% and then Sydney 48%.

PropTrack economist Paul Ryan says rising rents in the past two years may have pushed more people into buying property rather than renting and many of them could only afford to buy units.

“Now is the biggest divergence in prices between houses and apartments,” he says. “It’s not that houses are more expensive, it’s that apartments are cheap. PropTrack expects them to outperform over the next couple of years.”

Richard Temlett, associate director of property services firm Charter Keck Cramer, says it’s hard to determine when more apartments would be built because of the continuing uncertainty around shortages of materials and rising construction costs.

Loans Increase Despite Rate Rises

Rising interest rates have not been enough to deter home buyers. Australian Bureau of Statistic lending figures show the value of new housing loan and investment loan commitments rose during May.

The value of new owner-occupier loans increased 2.1%, while investment loan commitments rose 0.9%.

Real Estate Institute of Australia president Hayden Groves says the number of new loan commitments to first-home buyers grew by 2.3% in May but was 31.6% lower than the same time last year when FHB stimulus packages were in place.

“These figures show first-home buyers keen to lock in mortgages as interest rate hikes loom,” he says.

According to CoreLogic, home sales are still 16% lower than they were a year ago.

National advertised stock levels are about 7% lower than 2021, in Sydney and Melbourne. In Adelaide advertised stock levels are 17% lower than last year and almost 40% below the five-year average, while in Hobart stock levels have lifted.

Rental Markets To Remain Tight

Rents are continuing to rise as vacancy rates drop, with new figures showing the national rental crisis has become even more severe.

CoreLogic’s Quarterly Rental Review for the second quarter of 2022 shows compared with June 2021, dwelling rents are up 9% in capital cities and 11% in regional areas. SQM Research has higher figures, with rents up 15% in the past year.

Research analyst Kaytlin Ezzy says the national vacancy rate has fallen to a record low of 1.2% from 2.2% at this time last year. The report shows June’s rental listings are 34% below the long-term average.

Darwin is the only capital city to record rent growth below 2% while Adelaide had the highest growth during the quarter of 4.3%.

CoreLogic research director Tim Lawless believes rental markets will remain tight for some time for a number of reasons including lack of supply, a reduction in investors and growing demand as international migration resumes.

RBA Lifts Cash Rate to 1.35%

The new financial year got off with a bang with the RBA announcing another rise in the official interest rate.

The RBA board increased the cash rate from 0.85% to 1.35%, on the back of a similar increase in June.

PropTrack senior economist Eleanor Creagh says many households are sitting on large savings buffers which will help to ease the impact of the recent rate increases.

“For many homeowners, substantial home equity has been accumulated after the significant rise in home prices over the last two years, and some have taken advantage of falling interest rates to pay down debt quicker,” she says.

Mortgage Choice national sales director David Zammit says most lenders have already substantially increased rates on variable and fixed rate home loans.

He says it’s important that borrowers make sure they have the best rates on offer. Mortgage Choice data shows an increase in refinancing activity since the first cash rate rise in May.

450 Suburbs Join $million Club

Strong property price growth has added hundreds more suburbs to the million-dollar property club.

New CoreLogic figures show 450 additional suburbs have a median of $1million or more while 37 suburbs had a median unit price of more than $1million.

A record number of homes sold for $1million or more in the year to March 2022, with 23.8% of all homes that sold trading for more than $1 million.

CoreLogic research analyst Kaytlin Ezzy says a number of regional areas made it into the million-dollar club in the past 12 months.

She says regional suburbs made up a third of new entries.

“The value growth we have seen over the past couple of years has been quite dramatic,” she says.

“It doesn’t get you a great deal anymore. We’ve had pretty rapid price growth.

What was selling for $950,000 to $1 million 12 months ago, those older style houses, are now selling for $1.15 million to $1.2 million.”