Australian Housing Market Shows Signs of Revival Amid Rising Debt Concerns

The Australian property market appears to be on the brink of a turnaround, with major banks revising their forecasts and demonstrating a shift in their previously pessimistic views. Yet, the increasing burden of personal debt on potential home buyers remains a significant concern, potentially limiting the reach of this prospective recovery.

In a recent article by Jason Murphy titled “Australian Property Has Turned A Corner. Just Ask The Banks”, Australia’s major banks have released new home price forecasts, acknowledging that the housing market is on an upswing. According to Murphy, the banks were “forced to” revise their forecasts as “auction clearance rates tend to rise when the market is starting to turn” and these rates have been on a steady rise. “In Sydney’s most recent auction weekend, clearance rates hit 73% compared to 55% last year, while in Melbourne rates hit 70% compared to 60% last year,” he noted.

However, it’s not all smooth sailing for prospective buyers. As Matthew Elmas pointed out in his article “Debt wipes tens of thousands from Australian property budgets”, the impact of personal debt, including student, car, and credit card loans, is reducing potential home buyers’ budgets significantly. Canstar, a comparison firm, found that an average-income home buyer with a HECS loan and $94,000 annual income could have about $57,000 less available for their first home.

Even worse, Elmas reveals, “a credit card with a $10,000 purchase limit could reduce the approved loan size by up to $46,000, while a $30,000 car loan could put a massive $75,000 dent in the ambitions of a home buyer.” This issue is compounded by the fact that property prices are beginning to rebound despite high-interest rates, putting even more pressure on aspiring homeowners.

Although the banks are divided on their predictions for the housing market, they unanimously agree that a return to price rises is expected in 2024, albeit gently. The Australian housing market was more or less flat throughout the 1990s, with prices only growing by a third in that decade, reminding us that periods of no house price growth are not only possible but have happened in the past.

“Australians have grown accustomed to seeing markets soar when they aren’t plunging, but long periods of no house price growth are perfectly possible,” Murphy says, emphasizing the importance of people’s reactions to the current unusual conditions. He advises readers to watch developments throughout the spring selling season in the second half of the year and to be ready to revise expectations, just like the banks, if reality proves them wrong.

On the other side of the equation, Effie Zahos of Canstar advises aspiring home buyers to consider paying down their debts before looking to buy a property. “While aspiring home buyers have little control over rising property prices, they can take a close look at their expenses and debts that could be affecting their borrowing power,” she said.

In this rapidly changing scenario, the dual forces of market recovery and personal debt will be instrumental in shaping the Australian property landscape in the years to come.

References:

Elmas, M. Debt wipes tens of thousands from Australian property budgets. https://thenewdaily.com.au/finance/finance-news/2023/05/15/property-unpaid-debt-australia/

Murphy, J. Australian Property Has Turned A Corner. Just Ask The Banks. https://www.forbes.com/advisor/au/property/australian-house-prices-rising/