A WORD FROM JOHN M c GRATH

TRADITIONALLY, RE CYCLE CORRECTIONS OF THIS TYPE HAVE LASTED AROUND 18 MONTHS ON AVERAGE...

Last year was a year of correction for the property market. We saw property values in most markets correct by between 1015% from their peak in late 2021. However, in the context of the preceding three years, where most markets had risen by 25-40%, home owners still saw net gains of around 15-20% compared to the entire cycle.

The main catalyst for the correction was inflation, with rapidly rising interest rates increasing by 3.0% throughout the year with 9 straight rate hikes over 9 consecutive months. This not only reduced affordability for new buyers looking to purchase, but also put pressure on existing borrowers, particularly those with fixed-rate loans maturing this (estimated about 30% of residential loans are currently all or part fixed-rate loans). As a result, many borrowers are faced with a mortgage cliff, where their rates will increase from around 2.0% to around 6.0% upon maturity, putting significant pressure on household spending.

As spending is curbed by increased interest rates on all types of borrowing this will put pressure on the financial markets, which tend to thrive as people spend money on discretionary items and as businesses invest and hire more employees.

However there is light at the end of the tunnel.

– As immigration to Australia has resumed, and it is expected that an additional 150K immigrants will move to Australia each year, benefiting the economy and the housing market.

– Traditionally, RE cycle corrections of this type have lasted around 18 months on average, and since we are approaching the 18-month mark and well above the average price reduction for a cycle, we should be in the final stages of this downward cycle.

While current prices should settle around these levels, premium property will continue to attract overweight demand, and prices for the best of the best may escalate earlier than the main market.

Buyers should take advantage of the next six months to secure their new home or investment property, while the market takes a breather, before interest rates settle and prices start to move again.

– For sellers, they can now enter the market with greater confidence, knowing that new market levels have been established, and a good quality marketing message can help attract potential buyers.