Anyone willing to predict the outcome of the property market in the next 6 months is a braver person than I and realistically would be taking a stab in the dark. The consequence of 10 rate rises will not be realised until later in the year. Already there are obvious signs that people are hurting and so you would presume – not spending. Approximately 30 percent of the population have a mortgage and 30 percent rent. From all accounts these two groups reined in their spending some time ago. Disposable income fell 2.4% in the last quarter, the fifth consecutive fall. So, if 11 interest rate hikes, assuming we have another one, and renters looking at paying up to 30% more for the same property than last year, doesn’t curb one’s spending appetite, this aggressive approach won’t end well. Remember that the 30 percent of the population who do not have a mortgage are arguably elated by the Reserve Banks interest rate hikes. I just do not believe that the blanket approach on the sector of the population that rate hikes affect is the answer. Alternative solutions of increasing taxes i.e., GST, are not measures politicians appear willing to pursue.
Not long ago you would rightfully assess the property market was in reasonable health. Melbourne prices declined half a percent last month with regional areas .03 percent. Melbourne is now at a median price pre covid and regional areas remain up 30%. Auction rates are hovering around 70% due to a lack of supply and quality, well located and priced properties continue to sell well. However, this may change over coming months. The market could potentially retreat when fixed interest lenders are forced to pay the current interest rate amount. Businesses will suffer from the lack of activity as people scramble to save money. Renters will continue to compete for accommodation, and investors’ tire of taxes, tenants’ rights, and compliance issues. In saying that the stars are aligned to consider an investment purchase in the months ahead with soft prices, record rental returns, 1% vacancy rates and negative gearing still in play.
Economists are predicting a further fall in property prices far beyond what we have already witnessed. I don’t see this but we are at the crossroads where prices are resting where they were pre covid. Prices will probably plateau for a time and then continue their upward journey as they have done for decades. This will depend on the financial strain increased interest rates could have on mortgage holders, job security and the stability of small businesses.
Michael Ramsay
Principal
The Advocates