The recent slowdown in house prices do not indicate a cooling market, at least not yet, according to an expert.
McGrath Estate Agents Founder John McGrath said annual growth in dwelling prices can give a better view of where the housing market is currently at.
"Australian housing values have been going up at the fastest rate in 30 years, up more than 20% nationally over the past 12 months and up 28% in the strongest market – Hobart, and up 25% in both Sydney and Canberra," Mr McGrath said.
However, there is no denying that the rate at which prices are growing have already slowed in recent months.
CoreLogic's latest report showed that house prices have grown by 1.3% in November, the softest rate since January when values rose by 0.9%.
Dwelling prices have been on a consistent downtrend since July, coming off the peak monthly gain of 2.8% achieved in March.
"That’s not a cooling market – I’d say the market is normalising but there’s still a way to go,” Mr McGrath said.
Auctions market still healthy
Mr McGrath said the auction market provides a good indicator that the overall housing market is still holding steady.
“Auction clearance rates remain very healthy and well above average, despite a high volume of auctions this spring,” he said.
Over the last week of November, weekly auction volumes hit 4,251, the highest since CoreLogic records began in 2008.
“The volume is high right now because lockdown periods have pushed campaigns out, and buyer competition is fierce so more vendors are choosing to sell via auction to capitalise on the extraordinary demand,” Mr McGrath said.
“On top of that are seasonal factors, with November usually a high volume month as people try to sell before Christmas and the beginning of the new school year.”
What could cool the market?
Mr McGrath said the market will inevitably cool at some point — however, he believes a potential increase in the cash rate will not be the trigger.
“It’s more likely that affordability will be the first factor that cools the market down – and it’s already starting to bite,” he said.
“Not only have prices risen by more than 20%, but people’s borrowing capacity has been reduced because APRA has tightened credit criteria and some banks are raising fixed mortgage rates.”
Furthermore, the ratio of housing values to household are now at a new record high, which could further strain affordability of the market particularly for first-home buyers.
Meanwhile, the increasing supply of homes will start to dilute buyer competition, which has already happened and has contributed to the “normalisation” of current market conditions.
According to REA Group, listings have already increased by 21.9% over the past month, with Melbourne, Canberra, and Sydney posting the biggest gains.
“I think it’s inevitable that the market will correct at some point, however predicting the timing of that is hard given we don’t know what the pandemic will bring next,” Mr McGrath said.
Mr McGrath said those who are planning to buy should not worry so much about whether the market is going to cool.
“Property is a long-term game and you should plan to hold the next asset you buy through at least one or two cycles, which means a couple of growth spurts and a couple of market cool downs at a minimum,” he said.
“That’s the normal experience for property owners in Australia, so don’t let short-term predictions change your long-term course.”
Photo by Pat Whelen on Unsplash.
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