State of the Market | July-Aug 2023

10 JULY 2023

We are now at the mid-point of the year – how time flies!  This time last year, we were starting to see the first price falls as interest rates began to bite. Westpac, Commonwealth, and NAB banks predicted 8–10% price declines in 2023. A lot of other commentators were talking even more. The RBA governor, Phillip Lowe, predicted interest rates could rise by 2.5%.  

As it turns out, the bottom of the market appears to be behind us, and that is despite interest rates rising more than predicted.

Sure, July to October last year were a pretty tough slog for us agents (and, of course, for our home sellers). Prices around the country, on average, dropped -9.1% from the peak in April 2022 to the trough in February 2023. But since then, they have again started to climb.

Rather than the forecasted disaster, it feels like a civilised re-adjustment in expectations.

We now live in a world of competing messages—some positive for the market and others negative. But, large or small, each has a bearing on the market.

Reasons for additional demand (and hence potential price increases):

  • Increasing rents are providing an incentive for investors to come back into the market, adding extra buyer demand
  • Reopened borders are driving population growth and a demand for additional housing
  • Builders are going broke and not building enough homes
  • There is not enough land being released, and development of apartments takes years to complete
  • Headlines that the market has already bottomed out (FOMO sentiment drives people's behaviour to pay more)

Reasons for the market to go down:

  • Interest rates are continuing to increase, making it harder for buyers to afford more expensive homes
  • There is a mortgage cliff approaching as millions of borrowers come off super-low fixed interest rates, potentially forcing more people to sell.
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Trying to make sense of all this information is difficult. It is no wonder economic forecasters have gone quiet. Making predictions now is often a fool's game. The number of economists that forecast prices to start rebounding in early 2023 was precisely zero (that we could find, anyway).

But from these messages, one thing seems to make sense to us: there are plenty of reasons to think that real estate prices will continue to stabilise and grow, certainly in the medium and long term. This should not be considered financial advice, and buyers should do their own homework before making decisions. We are merely real estate agents, perhaps with a vested interest, but also, we hope with a reputation to call it as we see it.

Given all the competing messages, it is much easier not to make decisions about moving home. And it’s not any major surprise that people aren’t.

Many things identified above are at a macro level. But on a local level,
the lack of properties coming onto the market is the key driver of price changes. The buyers that are looking to get in the market right now don’t have a lot to choose from and are prepared to pay more to beat someone else.

At a local level, we see very low levels of people looking to sell – a reoccurring theme of our reporting this year. In the chart above, we’ve listed the transaction numbers for the first three months of this year compared to the last 20 years across the Newcastle local government area.

The data from 2023 shows the lowest number of sales on record. Sure, this only includes the first three months of data, but so do all the other years. And while we don’t have the complete picture of settled sales for the months following this, we reckon this has hardly improved since then.

When the market is booming, sellers are more keen to move. In the period 2016–2017 as well as 2020–2021, prices spiked significantly. 2019 was a challenging year for local real estate prices, and people sat on their hands.

We’ve also included the time it takes to sell the average house over the same period. These two factors are related. If the transaction number drops, you could conclude that the market is depressed and homes take longer to sell.

Based on this information, it would make sense for the Days on Market line to decrease in the next quarter, but does that mean more supply of homes coming onto the market? Knowing that answer will provide the clue to where the market goes from here.

Interestingly, the Days on Market listing here shows a longer-term trend: it takes less time to sell a home now versus the same period 10–20 years ago. We put this down to the increasing prevalence of auctions and the shift this has had to both buyer and seller expectations.

Whereas years ago, buyers would have thought a property that had been on the market a month or two was relatively normal. Now if it’s on longer than a fortnight, it is starting to get a bad smell.

 

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