REA’s Cameron Kusher says housing prices are likely to grow moderately this year, but the uptick in prices will hinge on factors like interest rates and home listing numbers.
Kusher, who is Executive Manager – Economic Research at REA Group, discussed housing values, sales, new home building, listing activity, rents, and his outlook for the housing market on the Voice of Value podcast.
Read an edited preview of the interview below or listen to the podcast on your preferred podcast platform here.
What happened to home values in the first quarter of 2023?
Kusher: We saw over the first quarter of 2023, property prices, somewhat surprisingly, start to increase. The increase was fairly moderate, but we did see over each month of the quarter that prices rose and they’re up by about half a percent by the end of the March quarter. We’ve just recently received April data and it’s showing a continuation of that increase. I think the big reason why we got an increase in prices was that sales volumes started very strongly during the first three months of this year. Now they were still significantly lower than they were over the first three months of last year and the first three months of 2021. But the reality is that those weren’t normal years. They were very strong and if we go back to say 2020 or 2019, sales volumes were significantly higher. This was a real turnaround from what we’d seen late in 2022 when sales volumes were back down around 2019 levels. So the year saw a big spike in demand, the amount of stock available for sales was still very low and more transactions happened that pushed prices higher.
Where did the demand come from?
Kusher: It’s a really good question. I mean, if we look at our demand metrics, we were still seeing a lot of inquiry, a lot of interest in property through late last year. I think it was just getting people to that point where they were making a decision about buying. People were just quite standoff-ish through the latter half of last year and I think that really changed. Maybe it was going away over Christmas. I think also it was clearly flagged that whilst interest rates still rose a few times and they still could rise again, that we were much closer to the end of the rate hike cycle. And of course a huge amount of demand coming in from people coming into Australia from overseas and the tightening of the rental market might have necessitated some people or encouraged some people to get out there and buy a property or upgrade.
What are the headwinds and tailwinds shaping the housing market at the moment?
Kusher: The headwinds for the housing market at the moment all about the interest rates. The other potential headwind is a lot of people are coming off very low fixed rates and into higher interest rates when they come off those expired periods. A lot of people that locked in were expecting that the cash rate was still going to be around 0.1%. It’s obviously a lot higher than that now, so people’s ability to make that adjustment is a potential headwind. Although reportedly people are doing that reasonably well at the moment. That said, the Reserve bank’s own analysis shows about 16% of people can’t refinance at the moment. Another big headwind is what happens with listings. One of the reasons why the housing market has been so strong is there’s such little stock on the market and such little stock coming onto the market. If that were to change and there was a big increase in the supply of properties available for sale, then we may see another downturn in prices. Now it’s not evident that’s happening yet, but get to spring this year and maybe we see that happening. In terms of the tailwinds, interest rates may be close to their peak and a lot of people who have been holding off transacting properties. So they may be looking to get on with it.
Another big tailwind is what’s happening in the rental market. We’re seeing rents escalating very rapidly, so that might drive more people to try and exit the rental market and into their own home. Although generally it is still cheaper to be renting than paying off a mortgage. The other big tailwind at the moment is just how many people are coming into the country. Net overseas migration into Australia reached a record high in March of last year, and then that was eclipsed in September. That data’s quite lagged, but if we look at overseas arrivals and departures data, there’s still a huge number of people coming into the country and that’s initially felt in the rental market, but longer term, those people will look to transition into their own homes, so it does drive demand.
What is your outlook for the rest of 2023?
Kusher: Look, prices are extremely difficult to forecast. We had, at the start of the year, forecast prices to fall 7%-10%. That clearly looks like it’s not going to happen given what’s happened over the first four months of this year. But if we did get a lot more stock come onto the market through the year, we could see this recovery that we are in start to peter out if we see a huge volume of stock come on in spring. Overall, there is probably some moderate growth in property prices this year. In terms of the rental market though, I think we’re going to see ongoing increases in rents, particularly in Sydney and Melbourne. I think we’ll see the strength in the rental market swing from houses to units as people look for cheaper alternatives. I think the cost of renting is going to force more and more people back into share houses as well. We know one of the things driving demand was that a lot of share houses broke up during the pandemic, and now as the cost of everything goes up and the cost of renting certainly goes up, we’ll start to see more and more people shifting back to those share house arrangements to try and make some savings on their accommodation.
Listen to the full podcast here ⬇️
The Voice of Value is a podcast series about Australia’s property industry. Powered by the Australian Property Institute, this series features in-depth conversations with Australia’s property leaders about their careers and passions, as well deep dives into different property markets.
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