The Australian Housing Market: A Complex Landscape for Buyers and Borrowers

The Australian real estate sector is experiencing a nuanced shift, with buyers facing both opportunities and challenges in an evolving market landscape. According to Jim Malo’s recent analysis, home buyers now have more choices compared to last year, thanks to an increase in property listings, particularly in Sydney and Melbourne. However, CoreLogic’s research director, Tim Lawless, notes that despite the higher supply, demand has not waned, making the buying environment competitive, especially in major auction markets.

Sydney and Melbourne, in particular, have seen a significant build-up of listings. The total number of properties on the market in these cities is slightly above and much more elevated than the five-year average, respectively. Yet, the influx of new listings remains just below the five-year average, indicating that some properties unsold from the previous year are still in the mix, adding to the overall supply. Despite this, dwelling values in January showed minimal changes, with Sydney experiencing a mere 0.1% increase and Melbourne a 0.1% decrease, according to CoreLogic data.

On the flip side, smaller capital cities like Brisbane, Perth, and Adelaide are witnessing robust growth dynamics, driven by sustained demand. This contrast underscores the varied nature of Australia’s housing market, where conditions can differ significantly between regions.

The auction clearance rates in Sydney and Melbourne have been strong, hinting at resilient demand. Ray White’s chief economist, Nerida Conisbee, highlighted the market’s vibrancy, with preliminary auction clearance rates reaching 73.8% in Sydney and 67.4% in Melbourne during the first two weeks of February. This suggests that buyers remain keen, despite potential challenges.

However, the housing affordability crisis looms large, disproportionately affecting lower-income earners. Sarah Dowling’s investigation into Commonwealth Bank data reveals that households earning over $150,000 now constitute more than half of all new owner-occupier home loan applications, a stark increase from five years ago. This shift highlights the growing financial barrier to homeownership, with high-income earners increasingly dominating the market. The impact of higher interest rates and inflation has exacerbated the situation, forcing younger households to cut back on spending and save less, according to CBA chief economist, Matt Comyn.

The affordability crisis is further evidenced by PropTrack’s Housing Affordability Report, which found that even a household earning $200,000 a year could afford loan repayments on only about half of the homes sold last financial year. For median income households, the figure drops to just 13%, marking the lowest share since records began in 1995.

In conclusion, while the Australian housing market offers more options for buyers than in previous years, the complexities of affordability, varying regional dynamics, and the competitive nature of auctions create a challenging landscape. Prospective buyers and investors must navigate this environment with caution, balancing the opportunities presented by increased listings with the realities of a market still very much in flux.

References:

Jim Malo’s article on the current state of the Australian housing market. https://www.smh.com.au/property/news/is-it-a-buyers-market-yet-where-home-prices-are-heading-now-20240212-p5f4ak.html 

Sarah Dowling’s report on the impact of the housing affordability crisis on home loans, based on Commonwealth Bank data. https://www.realestate.com.au/news/priced-out-shocking-cba-figures-reveal-impact-of-housing-affordability-crisis-on-home-loans/