The property markets have had a lot to contend with lately and it’s showing in slower house price growth and a downward trend in auction clearance rates.
Saturday’s clearance rate was the lowest reported so far this year.
Decreasing affordability in our 2 big capitals, a significant rise in fixed mortgage rates, rising variable rates, an upcoming election and the media full of stories of real estate Armageddon have dampened buyer enthusiasm, yet vendors are still hoping to get top dollar and this is being reflected falling auction clearance rates.
At the same time capital, city rental markets continue to tighten, with the record low vacancy rates still falling.
And in its statement of monetary policy last week, the Reserve Bank seems to have flip-flopped with its views on what’s ahead for our economy on our property markets.
These are just some of the latest property matters I want to discuss today in this week’s property inside a chat with Australia’s leading housing economist, Dr Andrew Wilson.
The Reserve Bank has changed its view on what’s ahead
While in February the Reserve Bank thought it had time on its hands and could be “patient” in lifting interest rates, the evidence of strong inflation seems to have caught the Reserve Bank by surprise.
The RBA has now significantly raised its forecasts for inflation and cut its forecasts for economic growth and unemployment.
The economy, as measured by GDP, is expected to expand by 3.5 per cent over the year to June 2022 (down from its previous forecast of 5.0 per cent), before picking up to a 4.25 per cent annual growth rate in December 2022.
Underlying or “core” inflation is tipped to exceed the top of the 2-3 per cent target band through to December 2023.
While we’re still creating lots of jobs and the jobless rate is tipped to fall to 3.5 per cent by June 2023, we won’t be enjoying “real” wage growth for some time as inflation will outpacing increasing incomes.
The Wage Price Index is expected to grow at a 3.00 per cent annual pace by the end of 2022 and wages are tipped to grow at a 3.75 per cent annual pace by mid-2024.
Rental markets tighten over April with higher rents
Capital city rental markets have continued to tighten over April with the record low vacancy rates still falling, predictably placing more upward pressure on already high rents.
The national weekly median asking house rent has increased by 14.8% over the past year to $521, with the April house vacancy rate declining to 1.2%.
All capitals have recorded significant increases in monthly asking house rents over the year ending April 2022, with Sydney the highest up 22.8% followed by Canberra higher by 14.5% and Adelaide up 11.9%.
Vacancy rates for houses remain at record lows and still falling generally with Melbourne, although still the highest, steady at 1.9% over April.
Other capitals with the exception of Perth and Sydney continue to report vacancy rates below 1.0%.
Canberra continues to report the highest capital city weekly house rents steady at $700 over the month followed by Darwin at $630 and Sydney again rising to $620.
Brisbane has the most affordable weekly house rents steady at $450 over April.
Unit rentals have also recorded strong increases generally over the past year with the April national median weekly asking rent for units at $462 – an annual increase of 12.0%, with the national vacancy rate for units falling to 2.1% over the month.
All capitals have reported increases in unit rents over the year to April with Darwin reporting the sharpest increase – up by 17.8% followed by Sydney up by 15.6%.
Capital city vacancy rates for units have continued to fall over April, with Sydney and Melbourne down again to 2.3% and 3.0% respectively.
Similar to houses, Canberra again reported the highest weekly asking rents for units over April but again steady at $550, with Adelaide the most affordable but higher at $390.
Demand for rental homes will continue to increase over 2022 driven by strong economies, the easing of covid restrictions and concerns, and the return of high levels of migration and students – all set to exacerbate a chronic undersupply of rental accommodation.
Higher rents and strengthening returns for investors are a clear consequence of a current clear and likely extreme mismatch between supply and demand in home rental markets.
Higher mortgage interest rates for investors are also likely to be passed on to tenants providing more upward pressure on already high and rising rents.
Housing loan approvals rise 1.6%, but annual growth is now negative for owner-occupiers
I keenly watch housing loan approvals because they’re a leading indicator telling me what’s ahead for our housing markets.
Loan approvals rose in March, but interestingly owner-occupier approvals have flattened out.
On the investor side, broad-based strength is being seen, with QLD extremely strongDespite the rise, it is clear momentum in the housing market is starting to turn with the annual rate of growth now negative for owner-occupiers at -2.2%, with recent growth coming from investors (+48.4% year on year).
Higher fixed rates are starting to bite with the fixed-rate share of new loan approvals falling to 21.6% from its recent peak of 46% in July 2021; prior to the pandemic, the fixed-rate share was around 13%.
This all adds to the mounting evidence of slowing momentum in the housing market, a point reinforced by house price data for Sydney and Melbourne over the past few months.
Dwelling approvals fall with the level of approvals settling back to around pre-pandemic levels
Residential building approvals fell 18.5% month on month in March, weaker than the -12.0% consensus (NAB -15.0%), but only partly reversing last month’s sharp 42.0% rise.
The fall this month was driven by the volatile apartment series (-29.9% month on month), with detached house approvals falling by less (-3.0% month on month).
Looking through the monthly volatility it is clear building approvals have fallen back from their pandemic highs with the annual year on year at -35.6% and the level of approvals has settled back to around pre-pandemic levels over the past three months.
By dwelling type, the story is more mixed with apartment approvals well below pre-pandemic levels (-31% below February 2020 levels), while detached approvals are still a little above pre-pandemic (+14% above February 2020 levels).
Auction Markets Tumble Following Shock Rate Rise
Despite repeatedly claiming that we wouldn’t see it happen until 2024…
The RBA lifted rates this month two years ahead of schedule and buyer hesitation is reflected in our auction markets.
Capital city auction clearance rates were mostly sharply lower at the weekend following the shock announcement by the RBA to increase official interest rates by 0.25% over May.
The national auction market reported a clearance rate of 71.3% at the weekend which was lower than the 73.1% reported last weekend and well below the 83.1% recorded over the same weekend last year. Saturday’s clearance rate was the lowest reported this year so far.
National auction numbers also fell sharply at the weekend with just 1667 listed compared to the previous weekend’s 2231 – and well below 2563 reported over the same weekend last year.
READ MORE: 8 Property trends we can expect in 2022
