Buyers, borrowers and sellers face tough property year after RBA holds

Economist, Nerida Conisbee reported double digit house price growth for the year.

ANALYSIS

The RBA left the cash rate on hold as expected today.

It had no choice. A cut would have been very out of character for the central bank, because its two favourite moves are a hold and a hike, followed by daylight in third and then a reduction. A hike would not have been a surprise.

In fact, murmurs are growing louder that a cash rate rise will be the next RBA move. It could happen before Christmas, or in February, as Aussies are recovering from peak spending season.

As the RBA keeps telling us, its job is to keep inflation under control. And if the September quarter CPI surge turns out to be a trend, rather than a one-off, the cash rate will be hiked again.

Inflation is another dilemma in a crowded field of problems for Australia’s property market, which, if we’re fair dinkum, is a sh*t show right now, with a horror year awaiting buyers, sellers, borrowers, developers and the workforce.

MORE:Worst RBA fears realised as house prices explode

Price growth surge

Falling interest rates have played a part in boosting demand for homes and pushing prices up. But they haven’t fallen enough to make property any more affordable.

Ray White’s October House Price Report revealed annual growth in house prices has hit 10.6 per cent, passing double digits for the first time since the exaggerated price boom of the Covid-lockdown era, when the cash rate was 0.1 per cent.

Ray White group chief economist and report author Nerida Conisbee said growth has accelerated faster than anticipated.

“In our September report, we noted that double-digit annual growth was likely to be confirmed by the end of the year,” Ms Conisbee wrote. “That milestone has come sooner than anticipated, driven by stronger-than-expected October gains and continued tight supply across most markets. This underscores how resilient demand has remained through spring.”

RBA governor Michele Bullock announced a cash rate hold. Picture: Jeremy Piper

Flood of demand

Property markets all over Australia already have a supply and demand imbalance, with nowhere near enough stock to go around.

The last month has seen a further surge in demand, brought on by the October commencement of the extension to the federal government’s Home Guarantee Scheme, which allows more first-home buyers (FHBs) into the market with just a 5 per cent deposit.

Data from Loan Market, Australia’s largest mortgage aggregator, revealed an instant 40 per cent surge in FHB applications, when comparing average weekly application volumes to the previous three months.

Loan Market broker Max White said the scheme had caused an immediate enquiry boost.

“As soon as news came out that the changes to the Scheme would be introduced in October rather than next year, first-home buyers reached out to get pre-approved with lenders who participate in the Scheme,” he said. The FHB influx into the market adds to the demand from high immigration rates in recent years and the upgraders who have extra borrowing power thanks to recent rate cuts.

And while all this demand sounds like good news for sellers, most of them do become buyers after they sell.

Supply disaster

SQM Research has revealed an October surge in property listings, with homes on the market up 10.9 per cent month on month.

But before we get too excited, it’s important to note listings remain 0.3 per cent down year on year.

SQM research director Louis Christopher noted that it was a big monthly listings jump, “even for spring”, as vendors appear more confident of finding buyers.

That level of supply, however, is not enough to meet demand and the challenges around developing new property remain dire.

After the first full year of the federal government’s national housing accord- the five year target of 1.2 million homes built- ABS data showed we are already 60,000 homes behind target.

SQM Research director Louis Christopher.

Meanwhile, new ABS data has revealed new build costs have hit record highs in NSW, Qld and South Australia, putting further pressure on the sector and making further interest rate cuts- very much needed by developers- more unlikely.

Housing Industry Association senior economist Tom Devitt said that on current forecasts, “we are expecting that detached housing will get close to 600,000 over five years… But the shortfall is mostly in the medium and high density that needs to do the other half.”

Financial pressure

A survey by Digital Finance Analytics revealed rising mortgage stress levels across Australia, even in a year with three rate cuts.

Rises in electricity, insurance and grocery costs had outpaced any savings banked from falling mortgage interest rates, leaving more than 50 per cent of borrowers in some states under mortgage stress.

Adding to the financial pressure, is the sticky inflation, which came in far higher than the RBA forecast in the September quarter; and the recent rise in unemployment to 4.5 per cent, which would have until quite recently presented a strong case for a November rate cut. Now, if anything, it has served as a reason not to hike, or an excuse for the RBA to do its other favourite thing… wait for the next data set.

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