Keep an Eye on These 5 Housing Market Trends This Spring
- Posted By Ndl 1 Realty
Despite significant increases in mortgage interest rates, the housing market has displayed unexpected resilience this year.
Following a tumultuous 2022, there were expectations of continued property price declines this year; however, this has not materialised.
Sales volumes have experienced an early 2023 rebound, remaining robust, while prices have consistently increased each month due to limited available inventory, which has intensified demand.
As September heralds the beginning of the spring selling season, with conditions even stronger than at the year's outset, it appears that this spring is poised to be quite active. Below, we outline the key trends influencing the property market.
Increased Property Listings
Traditionally, spring heralds a surge in new property listings, but last year, spring seemed to elude us.
Fast forward to this year, and new listings in Sydney and Melbourne began to rise well before the arrival of spring, following a prolonged period of persistently low numbers.
Interest rates are currently hovering at or near their peak levels.
Borrowers have grappled with a swift escalation in interest rates since May of the previous year. Interestingly, official interest rates have held steady for the past three months.
While it appears that rates are currently at or very close to their highest point, there remains a possibility of further increases in the future.
For individuals involved in real estate transactions, this temporary pause in interest rates provides a greater sense of assurance. Despite the substantial rise in borrowing expenses, the increased certainty surrounding mortgage costs is expected to enhance the confidence of both buyers and sellers in this market, thereby stimulating activity.
Conditions are becoming increasingly favourable for buyers.
Property prices were anticipated to decline over the course of this year due to a reduction in borrowing capacity of approximately 30% since the commencement of the interest rate hiking cycle. However, this expected decline has not materialised.
On the contrary, we have witnessed a limited supply of properties available for sale, a substantial uptick in sales activity, and a growing number of individuals actively seeking to make a purchase.
An increase in supply could lead to a deceleration in price growth or even some price reductions. With more properties available for sale, buyers may enjoy a broader range of choices. They might feel less pressure to make immediate purchases, especially if they anticipate additional options entering the market in the coming months.
Housing affordability is expected to deteriorate further.
National housing affordability has reached its lowest point since 1995. Additionally, as many homeowners transition from fixed-rate mortgages at around 2% to mortgage rates closer to 6%, they will be required to allocate a significantly larger portion of their income toward mortgage servicing.
The substantial rise in mortgage repayments for some borrowers could potentially lead to the necessity of selling their properties.
Furthermore, it is widely anticipated that home prices will continue their ascent throughout this year. This upward trend in prices is likely to reduce the availability of more affordable housing options, exacerbating the ongoing decline in housing affordability.
Are rent prices expected to keep rising?
While rents have seen significant increases in most major capital cities over the past year, the pace of rental price growth has been tapering off in recent months. It remains uncertain whether rental affordability has reached its limits or if this deceleration in growth is a temporary trend.
During the pandemic, average household sizes decreased, and there was a notable preference for houses over apartments. Looking ahead to today, the disparity in rental costs between apartments and houses is still greater than it was before the pandemic.
In light of this, renters are likely to seek more cost-effective alternatives, which could initially involve apartments but might eventually lead to shared housing arrangements.
While rental prices are expected to continue rising in major capital cities, the increase may not be as steep as observed in the past year. Additionally, it's possible that rental growth for houses may lag behind that of apartments.