Is the Australian property market finally starting to recover?

With property prices steadily lifting for the second month in a row, the Australian property market seems to have reached a curious junction point.

Prior to the RBA’s announcement on Tuesday, many economists and experts were optimistic that we had weathered the storm of rate rises. Now, with another 25 basis points added to the cash rate, the market faces the possibility of further downward pressure being applied to property prices.

Depending on where you read and whom you speak to, property prices look set to either fall once again or continue rebounding strongly.

According to figures from CoreLogic, the national Home Value Index fell 9.1% between May 2022 and February 2023, before rising again by 0.6% in March and 0.5% in April. Tim Lawless, CoreLogic's Research Director, believes this upward trend is evidence that the property market has passed its inflection point and is on the road to recovery.

“Not only are we seeing housing values stabilising or rising across most areas of the country, a number of other indicators are confirming the positive shift. Auction clearance rates are holding slightly above the long run average, sentiment has lifted and home sales are trending around the previous five-year average,” Mr Lawless said.

The issue of supply and demand has become increasingly important in the property market, as the supply of housing struggles to keep up with Australia's growing population.

“A significant lift in net overseas migration has run headlong into a lack of housing supply. While overseas migration would normally have a more direct correlation with rental demand, with vacancy rates holding around 1% in most cities, it’s reasonable to assume more people are fast-tracking a purchasing decision simply because they can’t find rental accommodation.

“Many prospective vendors have stayed on the sidelines through the downturn, keeping inventory at below average levels and providing sellers with some leverage at the negotiation table.”

Earlier today, NAB Chief Executive Ross McEwan told journalists that he also believed property prices have reached their lowest point.

“House prices we think bottom out from there, from a decline that’s been happening over the last six to 12 months. So I think, you’re seeing more and more prices going sideways as opposed to down,” McEwan said.

Also flagging supply and demand as the key factor driving the current market, the NAB boss stated that a lack of houses on the market are preventing prices from going much lower.

“It is a demand and supply issue. Not a lot on the market place, lots of people looking for it, lots of people looking for rental accommodation, and the big issue is we actually need to get more supply through more building going on in what is quite a difficult construction sector at the moment for residential housing,” he said.

But despite the recent rebound, some experts have highlighted broader risks to the overall stability of Australia’s property market.

Recently, the International Monetary Fund released a publication on the global economic outlook, ranking Australia as having the second-highest housing market risk out of 27 developed nations. The assessment highlighted that Australians face greater risks of defaulting on mortgages due to a number of reasons, including high levels of household debt, rising interest rates, and rapidly increasing house prices.

In other words, buying property in Australia is increasingly unaffordable, particularly for first home buyers and low-income earners. According to modelling from BetaShares, Melbourne is facing its worst mortgage affordability ever, with the average buyer needing 44.4% of their household income to afford Melbourne’s median house.

Described by the Sydney Morning Herald as a ‘house of cards’, Australia’s increasing dependence on borrowing leaves the market vulnerable, especially if the continued rate rises stall the economy and induce unemployment.

These differing sentiments from industry experts, combined with the market’s overall precarity in recent years, have left property owners and investors feeling understandably nervous.

So what’s our verdict?

While we don't claim to be property fortune tellers, we can assess the information from industry experts.

With consecutive monthly rises in home values, it appears that the worst of the slide is over. Falling values and market negativity has kept sellers justifiably cautious, with many holding off from selling as a result. This lack of supply, combined with rising immigration numbers, will likely keep property prices stable for the near future.

However, for those hoping for a swift rebound in property prices, it’s likely the market will take a while to make a full recovery.

Unaffordability is at an all-time high, which will be pricing many buyers out of the market. Additionally, the rate hikes handed down over the last 12 months look set to stay, which will continue to restrict how much we are able to borrow.

The RBA’s decision to pause rate hikes in April left consumers optimistic that rates had peaked, spurring a 6% increase in market activity. Sadly, the 0.25-point increase handed down on Tuesday will likely subdue that enthusiasm for the time being.

What seems like the most likely scenario is that we don’t see too much movement in property prices for the near future. Rising interest rates and a lack of housing supply appear to be counteracting each other, which may lead to a steady period whilst market activity remains quiet.

Of course, this is based on speculation and there will be other factors that affect the property market over the coming months.

If you're feeling nervous or struggling with recent rate rises, don't hesitate to reach out to a member of our finance team. Whether you need help refinancing to a lower rate or understanding your borrowing options, we're here to provide experienced home loan advice during this challenging market period.