Why Australia’s property market is so hard to predict right now

Too few houses available, too much demand and fuel prices up, confidence down, affordability still falling, interest rates rising, global security … who knows? In times of such uncertainty, it seems the biggest thing to fear is uncertainty itself.

“We can see that really affecting the market in both Sydney and Melbourne, where attendance at open-for-inspections has dropped right off,” says Ray White chief economist Nerida Conisbee. “We’re seeing that less so in other markets where interest rates have less of an impact.

“But with the ever-changing news of the Middle East conflict, consumer sentiment is at rock bottom at the moment, and we don’t have enough clarity around everything else affected, like inflation and interest rates. It’s all so unpredictable and everyone’s feeling that. The uncertainty is affecting us all.”

As a result, so many people are stuck in a cycle of such doubt that they’re afraid to do anything.

Buyers have been waiting for a dip that still hasn’t arrived, sellers are waiting for interest rate stability that looks a long way off, and the economy is a maelstrom of contrary signals.

Even with the latest data showing home price growth softening, construction costs are rising to counter what, for some, would be the only glimmer of good news. It’s little wonder so many of us are dazed and confused.

Certainly, with the 10 per cent jump in the cost of building a detached house in the month of April alone, on Westpac data, and more interest rate rises on the horizon, demand will definitely ease up, according to independent housing market analyst Eliza Owen.

“If you think of the interest rate as a kind of illness and every month the infection grows, the state of the market – that strength of demand and lack of supply – is the immunity that mediates the relationship between rates and house prices,” Owen says. “So, in Perth, house prices have risen strongly because there’s such a deficit of supply relative to demand.

“In Melbourne, the supply is more relaxed with zoning changes and urban greenfield supply and then there’s limited demand because of interest rates which makes that market more vulnerable to price falls. That can be good for first-home buyers and make it more affordable.”

SOLD - $490,000

3/963 High Street, Reservoir VIC 3073

2

1

1

View property

But generally, those in the housing market or those trying to get in were feeling “extremely battered” by all the doom-laden signals, like rising interest rates, energy costs and the increasing likelihood of a recession, Owen says.

“So, we can see a bit of decline in buying and selling in the short term and hopefully, once we get more certainty over the Strait of Hormuz and the conflict and oil supply, then we’ll see sentiment settle at higher levels.”

It’s pretty pointless in any case to spend too much time worrying about what is, essentially, completely unpredictable, says leading housing economist Professor Chris Leishman, from the University of South Australia.

With the best will in the world and huge amounts of experience, sometimes you still just never know what’s going to happen next.

“Everyone thought COVID was going to be a disaster for the housing market, but it wasn’t,” he says. “No one anticipated how strong the government’s intervention was going to be and how powerful.

“They did it really quickly and introduced a lot of stimuli and it ended up causing a boom instead of the bust.”

Similarly, in 2022 and 2023, the Reserve Bank of Australia (RBA) hiked rates 13 times in the most aggressive tightening cycle in a generation, leading to forecasts of a significant and sustained decline, with doomsayers prophesying that many would plummet over the mortgage cliff.

Instead, there was a brief correction, then the kind of solid price growth that shocked everyone.

“Interest rates, personally, I think, are over-hyped,” says Leishman. “We had emergency low rates then they went back up, but they’re still lower than they were. But, still, a lot of people are really struggling with housing costs, the cost of living and fuel costs.

“Yet while interest rates might go up once or twice more this year, there are no signs of panic. People are dealing with the uncertainty by biding their time and waiting to see what will happen.”

Many people have been comparing the current crisis to the tumultuous days of the pandemic, but there were a few differences, says Gareth Spence, head of Australian economics at NAB.

Many clearly expected bad outcomes from COVID, but population growth was strong at the same time, keeping things on a more even keel.

“Also, housing supply was weak, but demand was strong, which supported prices,” Spence says. “The challenge this time is that everything is so uncertain at the moment, and consumer confidence is down, and if spending comes down with indecision around major purchases, that might continue for a while.

“Then that uncertainty feeds into the medium-term outlook and there could be a greater impact as well from the Middle East, and from hikes in the interest rate. But the supply and demand equation is still weighted towards demand and, in the long term, it looks like prices and activity will continue to be supported.”

Historically, slowing price growth had led to more people buying, too, Spence said, but again, no one knows if that pattern will repeat itself. “It is very hard to predict anything just now,” he says.

SOLD - $1,340,000

21 Berrima Street, Wynnum QLD 4178

3

1

1

View property