Australian Property Market: A Balancing Act Between Recovery and Uncertainty

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The Australian property market has witnessed significant price gains in the first half of 2023, fuelling expectations of a potential market recovery. However, experts predict that this trend may be short-lived due to an anticipated influx of headwinds in the second half of the year.

In a recent report from Herron Todd White (HTW), the national director of residential at HTW, Ben Esau, expressed concerns over future rate hikes, which major lenders suggest could lead to increased mortgage stress among borrowers. “There has been a lot of discussion around the number of borrowers coming off attractive fixed rate loans and onto significantly higher variable rates throughout 2023,” Esau noted. He further emphasised the potential impact this could have on homeowners’ liquidity and how they cope with the shock of this rate rise cycle.

Contrasting this cautious outlook is the lacklustre property listing activity during June 2023, as revealed by Ray White’s analysis. The study found that new properties for sale declined by 8.3% year-on-year, with significant listings dips in capital cities like Sydney, Melbourne, Canberra, and Perth.

The report also highlighted the creeping increase in listing authorities (properties signed to Ray White but not advertised), indicating a potential response to market challenges.

Addressing this declining trend in new listings, Esau suggested that increased property listings, especially in certain geographic or market sectors, could lead to sharper declines in values1. He pointed out that while the tight rental market might help absorb listings, higher rates could continue to reduce buyers’ purchasing power.

On the rental front, the report by HTW mentioned that the short-term rental shortage will continue to affect both tenants and the Consumer Price Index (CPI). “Rental price increases are putting pressure on tenants,” Esau said, adding that calls for greater tenant protections are likely to amplify.

Commenting on the listing activity, Thierry Ng from Ray White stated, “New listings are declining slightly month-on-month and year-on-year, with listings still well below the early 2022 highs.”2 This observation aligns with Esau’s earlier comments about watching out for signs of mortgage stress, including increased property listings.

In this volatile scenario, policy changes may play a crucial role in providing relief and stability. Esau highlighted potential changes aimed at disincentivising short-term usage or vacancies and pushing stock back into the long-term rental market.

These developments all point to the next phase of the post-pandemic economy, where market conditions are likely to remain precarious for the remainder of 2023. As Esau noted, “All in all, the next phase of our post-pandemic economy has created a precarious remainder of 2023 for the residential property market.”

Thus, while the Australian property market shows signs of recovery, the projected uncertainties mean that homeowners, buyers, and investors must navigate the rest of 2023 with caution.

References

Martin, Mina. (2023). “Market recovery in the second half of 2023 could be short-lived, report says.” https://www.mpamag.com/au/news/general/residential-property-market-faces-significant-headwinds-htw/453895 

Ng, Thierry. (2023). “Australian property listing activity continues to crawl in June 2023.” https://thepropertytribune.com.au/market-insights/australian-property-listing-activity-continues-to-crawl-in-june-2023/