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As the winter months fade away and the weather warms up, attention turns to the upcoming spring property market – a traditionally busy period for the real estate industry.
Off the back of two consecutive rate pauses, holding rates at 4.10 per cent for the month of August, the upcoming spring selling season will certainly bring about an interesting set of circumstances for sellers, buyers and property professionals alike.
Chatting through this phenomenon on a recent episode of the Smart Property Investment Show, Grace Ormsby sat down with the chief economist at CreditorWatch, Anneke Thompson, to shed light on the economic environment’s potential impacts on the Australian property market over the coming months.
A tale of two markets
Ms Thompson began by highlighting the divide between two types of buyers most prevalent in the property market: cash buyers and leveraged buyers.
Cash buyers, often comprising the older, wealthier generation, are more insulated from interest rate fluctuations. They are likely to be concentrated in well-to-do areas and downsizer markets, where demand for single-level, high-spec units and apartments is likely to remain strong.
On the other hand, leveraged buyers, particularly in newly established suburbs on urban fringes and some inner-ring suburbs, are more vulnerable to rising interest rates. These areas are typically populated by first home buyers and households reliant on home loans to purchase properties.
The economist acknowledged that the recent surge in interest rates has impacted their ability to afford higher mortgage repayments, potentially leading to some distress in these regions.
Supply dynamics and market balance
While there has been a general lack of housing supply coming to market in recent years, this spring season may witness a slight increase in the number of properties coming onto the market.
According to Ms Thompson, the upcoming months will see some recent buyers – who have purchased since 2020 and are now facing higher repayments – put their homes up for sale.
She outlined expectations that this increase in supply is not expected to significantly outweigh demand, and will hopefully result in a relatively well-balanced market.
The impact on different regions
Despite the recent pause, and therefore the increasingly likelihood that Australia’s cash rate should peak soon if not already there, Ms Thompson acknowledged that the impact of the recent rate hikes are set to continue, leading her to expect that the impact of interest rates will be felt more acutely in markets with a higher proportion of leveraged buyers over the remainder of 2023.
She said highly leveraged locations including Sydney, Melbourne, Brisbane and south-east Queensland, which experienced substantial increases in house prices during the COVID-19 period, are likely to see more distress over the spring period than more stable and cheaper markets like Adelaide and Perth.
The prevailing sentiment is that those areas with a higher concentration of leveraged buyers – as outlined above – may experience more challenges compared to regions with a greater proportion of cash buyers.
As spring looms ever closer, all eyes will be on the impact of rising interest rates on various types of buyers and regions.
Listen to the full conversation with Anneke Thompson here.
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