The property market has been full steam ahead since the start of the year, with property prices in March growing faster than they have for 33 years.
A range of factors has led to this property frenzy. There’s been record low rates, attractive government stimulus, a surge in consumer confidence and lacklustre stock levels, which has brought about a sense of FOMO (fear of missing out) amongst buyers.
But, according to CoreLogic’s research director Tim Lawless there may be some early signs that the market has reached its peak, which may come as a relief for many buyers.
1. A slowdown in the pace of capital growth
CoreLogic’s home value index has started to indicate a “clear and broad based slowdown in the rate of housing value growth”.
This trend has been evident since late March, with data from March to April 2021 showing a decline in the rolling four-week change in dwelling values for all capital cities except Adelaide.
2. Lower clearance rates
Clearance rates have also been dropping somewhat, with a subtle fall in auction results reported over the Easter period.
The last week of March saw a high of 83.1%, whereas the week ending April 18th saw a clearance rate of 78.6%.
3. Increasing vendor activity
Buyers will be rejoicing to hear that there has been a lift in new listings to the market, at least relative to prior years.
Vendors are starting to take advantage of the strong selling conditions. In the 4 weeks ending April 18th there were 26,470 newly advertised capital city properties added to the market – this is the largest number of new listings for this time of year since 2016, and 17% above the 5-year average.
However, total advertised stock levels (new listings + re-listings) still remain low, being 17.5% below the five-year average.
This means that buyers are still likely to feel a sense of urgency, however the lift in stock will help balance out the market.
4. More new housing supply
There’s been a lift in new housing construction, which should help add to supply levels over time.
New dwelling construction approvals have reached record highs, with dwelling commencements during the December 2020 quarter almost 20% higher than the previous year and 5.5% above the decade average.
5. Falling population growth
Australia’s population is on the decline for the first time since 1916, thanks to closed borders and stalled overseas migration.
While stalled migration has a more direct impact on the rental market, if international borders stay closed for a considerable length of time we may start to see an impact on buying demand.
6. Less incentives
There’s little doubt that schemes such as HomeBuilder, along with other government incentives, have helped entice buyers into the property market. However, as these schemes run out we may see demand for property reduced.
7. Higher barriers to entry
Rising property prices are making it increasingly difficult for new buyers to break into the market.
Data to September 2020 (which was before property prices exploded) showed that it would have taken a typical Australian 8.6 years to save for a 20% deposit (based on a household being able to save 15% of their gross income). Households in the most expensive capitals, Sydney and Melbourne, would take even longer, needing 11.4 and 9.8 years to save a deposit.
So, can buyers expect a reprieve soon?
While it’s possible that these signs are pointing to the market having reached its peak, the property market will continue to be supported by several factors, including ultra low rates and a recovery in Australia’s economy.
According to Lawless – “the rapid economic recovery trend and low interest rates are likely to keep consumer spirits high for a prolonged period of time. The correlation between sentiment and housing activity is high; as long as consumers remain in a buoyant mindset we should continue to see housing activity holding up.”
Additionally, if international borders reopen, this will help support housing demand as overseas migration recovers.
Overall, Lawless expects housing values to continue to rise throughout 2021 and 2022; however probably not at the unsustainable rate it has been over the last few months.