State of the market property report for March 2023

The downturn in Australia’s housing market continues amidst hawkish monetary policy conditions, with home and unit values seeing their largest annual decline on record in February.

Given the lagging impacts of monetary policy adjustments, the record run of interest rate hikes by the Reserve Bank of Australia (RBA) will further exacerbate mortgage distress in the second quarter and create the potential for more buying opportunities for investors.

We believe an eventual rebound in the Australian property market is still on its way however, given robust underlying fundamentals and signs from the RBA that hikes to the cash rate could soon come to an end.

Australian home prices post biggest drop on record

According to data from CoreLogic, Australia just saw its largest annual drop in property values on record (since 1980), with a decline of 7.9% over the past year.

Sydney saw the biggest decline in values for houses and units with a 13.4% plunge, while in Hobart dwelling values dropped by 11.6% and in Melbourne they posted a 9.6% fall.

Other capital cities bucked the national trend however, with Adelaide seeing a 5.1% increase in dwelling values over the past year, Darwin a 2.9% rise and Perth a 2.4% increase.

CoreLogic data further indicates that the pace of dwelling value declines in on-month terms eased to a near standstill in February despite the record annual drop.

The monthly pace of decline dropped to just 0.1% over February, while the combined value of residential real estate in Australia actually saw a rise to $9.3 trillion at the end of February, as compared to $9.2 trillion for the end of March.

This positive trend has continued since the start of March, with CoreLogic’s Daily Home Value Index up 0.3% month-to-date as of 15 March.

RBA stays hawkish as inflation still rides high

Despite the slowdown in dwelling value declines, we believe a robust bounce in Australia’s housing market remains unlikely in the near-term due to the maintenance of a hawkish monetary policy stance by the RBA.

On 7 March, the RBA board announced a 25 basis point increase in the cash rate target to 3.60%, bringing it to its highest level since 2012.

Since the current cycle of tightening kicked off in May 2022, the RBA has implemented 350 basis points in cumulative interest rate hikes.

Analysts expect the present round of tightening to soon come to an end, given mounting pressure on home loan borrowers and signs that Australian inflation may have reached a peak.

“The monthly CPI indicator suggests that inflation has peaked in Australia. Goods price inflation is expected to moderate over the months ahead due to both global developments and softer demand in Australia,” RBA governor Philip Lowe said.

CrowdProperty Australia CEO David Ingram said that while construction firms are seeing an easing in commodity prices — especially metals and timber — he expects to see inflationary pressure persist in property development, particularly with the shortage of skilled labour in Australia.

“Anecdotally, we are hearing of separation of large and small construction projects with some smaller builders actively starting to build their pipeline again,” Ingram said.

Rob Flux, developer and educator from the Property Developer Network, said he’s anticipating one more rate hike.

“They’ve [RBA] given indications that they think inflation has peaked, but they are still in the process of trying to slow things down,” Flux said.

Given the lagging impacts of monetary policy, Flux expects even greater buying opportunities to hit the property market in several months time.

“Every time they make a rate change there’s a good two to three month lag before it hits people hard and they struggle with mortgage distress,” he said.

“That’s when the true buying frenzy will happen, and we’ll come into some great buying opportunities for savvy purchasers who can afford to ride out the next 12 - 18 months.”

Flux still expects an eventual recovery in the property market by mid-2024, on the back of easing monetary policy, as well as the strong fundamentals of the Australian property market created by rising immigration and insufficient housing supply.

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Rob Flux is the owner and founder of Property Developer Network, the largest national network of novice developers and renovators in Australia with a combined community of over 15,000 people.