The housing market is in a state of flux, with a recent decline in auction clearance rates and a potential slowdown in price growth. This article delves into the factors driving this shift, the implications for homeowners and investors, and the outlook for the spring market.
The Weakest Auction Market Since 2020
The housing market is experiencing a downturn, with auction clearance rates hitting their lowest levels since the lockdowns of April 2020. This decline is a result of a perfect storm of factors, including rising interest rates, the US-Iran war, and changes to investor property taxes. The market has weakened since the start of the year, with a decline in the number of homes selling at auction and a fall in home values.
The Perfect Storm
The decline in the auction market is a result of a combination of factors. Home buyers were initially hopeful that interest rates would remain steady, but the Reserve Bank has since lifted the cash rate three times, reducing the amount buyers can borrow. The US-Iran war has also hit confidence and driven up petrol bills, making buyers more mindful of their budgets. Additionally, changes to investor property taxes have led some investors to put their plans on hold.
Signs of Stabilisation
Despite the weak clearance rate in June, there are signs of the auction market stabilising. Over the past two weekends, the early read on the clearance rate has held above 50%. Some sellers have been willing to cut their price hopes to sell at auction, rather than letting the property pass in. This suggests that sellers are starting to understand that they need to be realistic about their price expectations if they want to sell.
The Seasonal Effect
The seasonal effect of a drop in supply of homes for sale over winter, at the same time as there has been a drop in demand from home buyers, is also a factor. Homeowners traditionally prefer to sell in spring, when their gardens bloom. However, the volume of sellers is less clear, and there may not be as many homes for sale as usual this spring.
The Outlook for Spring
The outlook for the spring market is uncertain. There may not be many buyers, but the volume of sellers is also unclear. AMP chief economist Dr Shane Oliver points out that stock-starved July often has a seasonal pick-up in the clearance rate, but there may be more at play. If vendors continue to hesitate, there may not be as many homes for sale as usual this spring.
The Role of Investors
On the demand side, investors are expected to hold back from buying until they get lower prices or higher rents. A clear signal that the Reserve Bank has finished hiking rates could also offer support, but this point has not yet arrived. Domain chief residential economist Dr Nicola Powell disagrees with Oliver, tipping sellers to pull back and set realistic price expectations.
Conclusion
The housing market is in a state of flux, with a recent decline in auction clearance rates and a potential slowdown in price growth. The outlook for the spring market is uncertain, with a combination of factors driving the market downturn. Homeowners and investors need to be realistic about their price expectations and be prepared for a potential slowdown in the market.
