A stronger than expected lift in demand over the past two months is nudging property prices higher and delivering the highest auction clearance rates in more than a year, data group CoreLogic says.
If the price rises are maintained for the rest of the year, home values will end up about 4% higher in 2023, defying earlier predictions of sharp falls of 10% or more for this year, CoreLogic says.
“Economists are shredding their previous price forecasts,” said Sally Tindall, research director for RateCity. “There’s been a significant turnaround.”
The prediction followed another week of rising auction clearance rates. Preliminary clearance levels were 75.3%, the highest in 15 months, in the third consecutive week above 70% before revisions, CoreLogic said.
The buoyant demand came despite the Reserve Bank surprising most economists at the start of May with another interest rate rise, the 11th since last May.
Surging population growth and expectations that the RBA may only have one more hike to come have underpinned the rebound in real estate.
Also supporting prices and clearance rates is a decline in property listings. As of April, there were 138,144 listings across Australia, near decade lows and down more than a third from the average for the month, CoreLogic said.
But past figures indicate that for each 1% increase in property prices, listings rise 0.5%, so listings could soon rise given the price increases.
Home values, meanwhile are clawing back some of their losses. (Source: @corelogicau ) pic.twitter.com/qw1qM4SFrX
— @phannam@mastodon.green (@p_hannam) May 22, 2023
“There is still some uncertainty around the trajectory for the cash rate, particularly given the latest monetary policy announcement showing a tightening bias from the Reserve Bank,” said Eliza Owen, CoreLogic’s head of research.
There are other uncertainties, including how many properties come on to the market because their owners are unable or unwilling to keep paying off the debt, Tindall said.
“[Prices] are defying gravity at the moment,” she said, adding that anecdotal evidence suggested some investors were opting to offload their properties.
But she said the banks “aren’t seeing huge amounts of [mortgage] distress either”.
The bank regulator, Apra, is due to release its updated report on non-performing loans on 6 June. The previous report, for the December quarter, showed there were 8,893 loans that were between 30 and 89 days overdue, down from more than 10,500 in March 2021.
Since then, however, there have been three more interest rate rises from the RBA, and many borrowers will be shifting from fixed to variable rates, magnifying the mortgage hit.
Tindall said the recent rebound in prices can’t be taken for granted. For one thing, while some people will have received a pay rise, most pay packets aren’t keeping up with inflation.
“We’re also expecting a significant increase in unemployment,” she said.
“People who don’t have a job find it difficult to pay their mortgage”, especially if they have run down any savings buffer they might have built up during the pandemic.
Westpac last week said it would lower the stress test on certain refinance applications to help borrowers out of their so-called mortgage prison. The modification also applied to Westpac subsidiaries St George, Bank of Melbourne and BankSA.
Banks typically require borrowers to be able to afford their debt repayments even if they were charged three percentage points higher than the rate they applied for, RateCity said. That curb, though, held back some borrowers from being able to take advantage of market competition to refinance.
