Is the property market starting to bottom out?
October 20, 2022
In Melbourne, where the clearance rate was 66 per cent last weekend, Heath Thompson believes the uptrend of clearance rates will continue due to a type of buyer that has emerged in recent weeks.
There are strong signs that the lengthy property market downturn may not be quite as drawn out as first thought.
First the RBA only cut rates by 25 basis points in the October meeting, where many forecasters and economists had expected a 50 basis point hike. The cash rate now sits at 2.6 per cent, with the overarching view there are still a few more rate hikes to go before the RBA wait to see if their efforts to curb inflation have been successful.
It was the sixth consecutive month the RBA had hiked rates from a record low 0.1 per cent, but it was the first time in six months it wasn’t what is referred to as a “double rate hike.”
Clearance rates, which is one of the leading metrics in buyer appetite, was just over 63 per cent, the sixth week in a row it was over the 60 per cent mark. By no means is 60 per cent a target figure given clearance rates are in the high 80’s and into the 90’s when the market is hot, but it’s a start.
But in Melbourne, where the clearance rate was 66 per cent last weekend, Projects by Buxton Director Heath Thompson believes the uptrend of clearance rates will continue due to a type of buyer that has emerged in recent weeks.
“Bargain hunters are always the first to come back when the market has seen a significant drop,” Thompson said.
“They’re almost an indication as to when the market has bottomed, as they think now is the time to pick property up at its lowest price before it starts to shoot back up again in the historical pattern.
“Bargain hunters will almost singlehandedly drive the market back up. They essentially compete with each other which creates competition at auctions which does two things; drives prices up, which in turn drives auction clearance rates. There’s a much less likelihood of a property passing in and not meeting a vendor’s expectation when there’s a few bidders at an auction.”
Thompson says it’s the old adage, “if you wait for the bottom, then you’ve probably missed it.”
Thompson, who markets off the plan developments around Melbourne’s exclusive Stonnington and Bayside areas, is expecting a late run into Christmas as buyer demand starts to pick back up.
At the moment Thompson is predominantly dealing with two types of buyers; the first home buyer who wants certainty in what they pay and are happy to wait for it to be ready, and the luxury downsizer, who wants the low maintenance living in a brand new property that requires no renovations.
Before the rate hike of just 25 basis points, CoreLogic’s Research Director Tim Lawless said it’s possible we have seen the initial shock of a rapid rise in interest rates pass through the market and most borrowers and prospective home buyers have now ‘priced in’ further rate hikes. However, Lawless suggested that if interest rates continue to rise as rapidly as they have since May, we could see the rate of decline in housing values accelerate once again.
Lawless cited the improvement of other indicators as the rate of decline in the property market slowed in September.
“Auction clearance rates also trended upwards, albeit subtly, in September and consumer sentiment nudged a little higher as well on the back of strong labour market conditions,” Lawless said.
“We’ve also seen the flow of fresh listings continue to slide through the first month of spring, which is uncommon for this time of the year.”
Expect listings to flow next year as thousands of fixed loans expire. Those fixed loans, whether they were one-year or five-year fixed, will likely have been fixed at around the two per cent mark. Now the average interest rate on the market is in the mid four per cent range.
This article first appeared on urban.com.au and has been republished here with permission.
