As Australia heads into the spring selling season of 2023, the property market is poised for an interesting set of circumstances, particularly after two consecutive rate pauses that have held rates at 4.10 per cent for August. The dynamics of the market are set to be influenced by various factors, including the divide between cash buyers and leveraged buyers, supply dynamics, and the impact on different regions.
In a recent episode of the Smart Property Investment Show, chief economist at CreditorWatch, Anneke Thompson, shed light on the potential impacts on the Australian property market in the coming months.
A Tale of Two Markets
Thompson highlighted the divide between two types of buyers that are most prevalent in the property market: cash buyers and leveraged buyers.
Cash buyers, often comprising the older, wealthier generation, are more insulated from interest rate fluctuations. They are likely to be concentrated in affluent areas and downsizer markets, where demand for single-level, high-spec units and apartments is expected to remain strong.
Leveraged buyers, on the other hand, are more vulnerable to rising interest rates. These buyers are typically found in newly established suburbs on urban fringes and some inner-ring suburbs, populated by first home buyers and households reliant on home loans. The recent surge in interest rates has impacted their ability to afford higher mortgage repayments, potentially leading to distress in these regions.
Supply Dynamics and Market Balance
While there has been a general lack of housing supply coming to market in recent years, this spring season may witness a slight increase in the number of properties available. Thompson outlined expectations that some recent buyers, who have purchased since 2020 and are now facing higher repayments, may put their homes up for sale. However, this increase in supply is not expected to significantly outweigh demand, resulting in a relatively well-balanced market.
The Impact on Different Regions
Despite the recent pause in rate hikes, the impact of the previous increases is set to continue. Thompson acknowledged that the effect of interest rates will be felt more acutely in markets with a higher proportion of leveraged buyers over the remainder of 2023.
Highly leveraged locations, including Sydney, Melbourne, Brisbane, and south-east Queensland, which experienced substantial increases in house prices during the COVID-19 period, are likely to see more distress over the spring period. In contrast, more stable and cheaper markets like Adelaide and Perth are expected to fare better.
The prevailing sentiment is that areas with a higher concentration of leveraged buyers may face more challenges compared to regions with a greater proportion of cash buyers.
As spring looms ever closer, all eyes will be on the impact of rising interest rates on various types of buyers and regions. The dynamics of cash and leveraged buyers, coupled with the potential shift in supply and demand, will shape the Australian property market in the coming season, offering both opportunities and challenges for sellers, buyers, and property professionals alike.