Rate rises beginning to bite in most property markets as sellers and buyers grow wary

Two new reports have highlighted the impact of rising interest rates on property markets, with clear signs of dipping buyer sentiment and growing eagerness to list among vendors.

PropTrack has released its monthly Housing Market Indicators report and Listings report today, looking at movements in May, showing a two-speed real estate sector emerging.

“Housing market activity in 2022 has quickly slowed from last year’s exceptional pace due in part to rising mortgage rates and higher home prices dampening affordability,” PropTrack senior economist Eleanor Creagh, who authored the HMI report, said.

Home prices surged at a record rate over the past two years, but now that the Reserve Bank has begun lifting historically low interest rates, demand from prospective buyers is cooling.

“Further to this, expectations of price falls and continued interest rate rises are likely weighing on activity, in combination with the start of a seasonally quieter winter period,” Ms Creagh said.

Sydney, Melbourne, and Hobart are seeing markets slow more quickly that in Adelaide and Brisbane, she said.

Smaller capital cities are being boosted by strong levels of interstate migration, inspired by greater workplace flexibility, more affordable housing, and a desire for larger homes. 

Smaller cities like Adelaide are proving to be more robust than bigger capitals. Picture: Getty

“In May, home prices fell for the first time since the pandemic onset, but the smaller capitals Brisbane and Adelaide bucked the falling trend,” Ms Creagh pointed out.

“However, activity has now begun to slow in both these markets, indicating that they will likely not be immune to price falls later this year.”

Regional areas are also bucking the trend, boosted by people fleeing cities during COVID, country and coastal locations have seen demand skyrocket while supply remains constrained.

“Demand per listing remains higher, which is supporting price growth in these markets,” Ms Creagh said.

Regional property markets also remain strong, with continued high demand and low supply. Picture: Getty

In terms of supply, there was a rebound in new property listings in May after a lull in April on the back of multiple public holidays.

All cities and most regional areas saw new listings increase last month, PropTrack economist and Listings report author Angus Moore said.

“New listings nationally on realestate.com.au were up 9.1% month-on-month in May and were 5.9% higher than they were at the same time last year,” Mr Moore said.

“The increase helped lift the total stock of properties available for sale around the country by 4.4% month-on-month. Most cities and regional areas saw increases in total stock available for sale, with only Canberra and regional South Australia recording small declines.”

As has been the case for the past few months, conditions for homebuyers looking in Sydney and Melbourne continue to improve.

The stock of properties for sale in both major cities is now above the decade average, giving purchasers much more choice than they’ve enjoyed for a while.

“Buyers in Hobart have also seen their options improve significantly, with the stock available for sale up 37.7% compared to the same time last year, and up two-thirds from the low seen in July last year,” he said.

“The same is not true for buyers in Brisbane or Adelaide, where available stock, while improving, is down around a third compared to pre-pandemic levels.”

More choice and less frenzied competition means buyers can take their time. Picture: Getty

In the regions, total stock of properties for sale remains low but did improve slightly last month with a 4.4% increase compared to April.

After a strong start to the year, with a “brisk pace” of new listings coming to market in many parts of the country, selling conditions are likely to slow throughout winter.

Mr Moore believes they will pick up again during the typically busy spring selling season.

“Selling conditions broadly have begun to temper after a very strong spring 2021 and early 2022. Measures of buyer demand remain solid but have declined from their high levels earlier in the year.

“Fundamental drivers of demand remain strong, with unemployment low, wages growth expected to pick up over this year, and international migration returning.”

The Reserve Bank’s rate hikes are beginning to weigh on sentiment, with more increases expected. Picture: Getty

The Reserve Bank’s super-sized interest rate rise this week – it lifted the official cash rate by 50 basis points to 0.85% – is a sign of things to come, Ms Creagh said.

“From here, the magnitude and timing of further interest rate increases will be the key decider in the ongoing loss of momentum in housing market conditions,” she said.  

Coupled with less competition, more choice, and a less frenzied sense of urgency, sellers may need to begin tempering their price expectations.

“Looking ahead, these headwinds will continue to slow demand from prospective buyers and it’s likely that activity will further ease, seeing price growth continue to moderate from the exceptional pace we’ve seen over the last year.”

But low unemployment, wages growth, a robust economy, and an imminent rebound in migration mean that the long-term outlook for property remains strong.

The post Rate rises beginning to bite in most property markets as sellers and buyers grow wary appeared first on realestate.com.au.

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Rate rises beginning to bite in most property markets as sellers and buyers grow wary

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