Australia’s housing market is going to see more stock coming onto the market and more forced selling in 2023, as interest rates rise further and financial pressures mount.
“People are starting to feel financial pressure and I think we will see more distressed selling next year,” WBP Group Chairman Greville Pabst told ANZPJ.
“I expect that there will be a lot of stock coming onto the market in February but whether there are going to be buyers is another thing – there certainly aren’t as many buyers in the marketplace.”
Pabst said there was a housing finance issue looming in February and March next year, when many fixed-term home loans matured.
Many of those fixed-term mortgage holders will see their interest rates jump from as low as 2% to almost 6%.
“It’s a huge increase in mortgage repayments, so there’ll be quite a lot of people that won’t be able to meet those repayments who will have to sell their property,” he said.
If that happened, there would be a lot of refinancing and properties coming up for sale, meaning more supply coming onto the market.
Home prices in Australia have been falling throughout 2022, down 3.2% nationally for the year to end November, according to CoreLogic.
Sydney and Melbourne house prices have fallen the most during the downturn this year, down about 10% and 7% during the same period.
Pabst said many of the properties taken to market this year had been investment-grade and secondary properties rather than sought-after family homes.
He said the over-representation of investment-grade and secondary properties up for sale may have distorted median prices around the country.
Many homeowners have been avoiding listing their home on the market this year unless they were forced sellers.
He said owners of good quality family homes were unlikely to sell their homes in a downward market unless they had a reason to, like relocating to a new city, financial difficulties or divorce.
There has also been a standoff between buyers and sellers this year, with buyers looking to take advantage of falling home prices and vendors maintaining holding the line on price expectations.
“Buyers have been expecting to get a bargain, but they haven’t really been able to get them yet,” he said.
“We’ve seen a lot of auctions this year where people have got their hands in their pockets because of a lack of confidence in the market.”
Pabst said changes to the unemployment rate and the lending environment may also influence the housing market next year.
He said if the unemployment rate started to rise next year, then we were likely to see further falls in property prices.
There has also been uncertainty around raising capital in the debt markets at the moment, which could lead to a credit squeeze next year, which would also impact property prices negatively.
For example, Pabst said some banks weren’t lending to development projects at the moment, which meant developers that needed to commence projects were resorting to expensive mezzanine lending.
The lack of credit, higher construction costs and other factors meant the feasibility of some housing development projects no longer stacked up.
Looking ahead, Pabst said auction clearance rates would be an important indicator to watch for housing price movements next year.
He said property prices tended not to fall at clearance rates around 60%, which is where they have hovered for most of 2022.
However, property prices would weaken if clearance rates fell to 50% or lower.
Read our other 2023 Australian Property Outlooks
2023 Australian Retail Outlook
2023 Australian Industrial Outlook
2023 Australian Office Outlook
