Mortgage brokers can expect to see a range of competing factors influencing their customers’ sentiment and behaviour over the next few months, according to CoreLogic’s Asia-Pacific research director Tim Lawless (pictured), including “uncertainty”, a “sense of urgency” and homebuyer “resilience”.
The four largest Australian capital cities have all recorded an increase in housing values from the lows recorded in February, according to CoreLogic’s data, with the upswing gathering momentum, especially in cities such as Brisbane where its index is up 1% over the last four weeks.
The price increases have been driven by “decade-low listing numbers” from vendors in the market, which have strengthened conditions for sellers, as evidenced by above average clearance rates, faster selling times and less negotiation, Lawless said in a seasonal update.
“The total number of homes listed for sale nationally is tracking 28% below usual,” he said.
“When listing volumes are very low, selling conditions strengthen, which means potential vendors thinking about selling may well be tempted to list now rather than waiting until the traditional spring period, when activity surges and there’s a spike in competition to sell.”
Demand may also be supported over coming months by a return of the ‘Fear of Missing Out’ factor, as low advertised stock levels, rising clearance rates and higher values, as well as strong overseas migration and tight rental markets, drive more time-sensitive property purchase decisions.
“Fear of Missing Out (FOMO) – or buyer concern about being left behind – was at its peak when the market was in full flight in 2021. While the trend is not back, yet, it does appear that some buyer demographics are highly motivated to get into the market,” Lawless said.
“The pool of available properties they’re competing for is the smallest it’s been in more than 10 years. A sense of urgency will likely play a part in some decision making over winter.”
Challenges expected to cool market exuberance
The surprising property price bounce, which is being led by the Sydney market, is “probably unsustainable” said Lawless, because housing affordability measures remain stretched.
Lawless said demonstrating the ability to service a loan is going to be “one of the biggest hurdles that prospective buyers will face this year”, following successive increases in interest rates since May last year, and the additional hurdle of a serviceability buffer that is three points higher again.
“We also can’t ignore low consumer sentiment levels, which will also be having some dampening effect on the market’s current exuberance, and we shouldn’t expect to see a material lift in property activity until there’s an improvement in consumer confidence more broadly.”
Lawless said if the RBA were to cut interest rates, there is a good chance of a lift in consumer spirits, accompanied by a substantial pick up in both buyer and selling activity. However he said a rate cut was unlikely any time soon, with many economists predicting further rate hikes in coming months.
“All of this is likely to be adding to uncertainty and low consumer confidence levels, however any reduction in rates will likely be the cue for more buyers and sellers to become active again,” he said.
Brokers can expect their existing mortgage clients to do just about anything to hold on to their properties, even though there are predictions borrowers in distress are likely to increase, and that this may cause some customers to make difficult decisions about their property.
“We would be naive to think there isn’t going to be a rise in motivated selling or increase in mortgage arrears in the short- to medium-term,” Lawless said. “However, coming off record low rates, most banks were reporting 90-day arrears rates of around 0.5% to 0.6% at the end of 2022.”
Lawless said that although that benchmark is set to increase, which would involve higher distress among broker customers, “most homeowners or borrowers will do their best to pull back sharply on discretionary spending before missing mortgage repayments or selling their home.”
