Australian house prices fall, interest rates rise but analysts say no collapse yet

SYDNEY – In a country where real estate ownership predominates in barbecue conversations and dinner partiesAustralian Lili Zhang is like many homeowners.

While she has a healthy asset portfolio, she now faces the biggest threat to her investment, rising interest rates.

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Zhang, aged 40 and working in finance in Sydney, owns a AU$3 million (nearly $2 million) home of his own and has invested in two other apartments in the popular eastern suburbs. city ​​language.

To finance, she took out a bank loan of about AU$3 million (nearly US$2 million).

Mortgage rates have fallen below 2% in recent years, but like many countries, rates are rising rapidly in Australia as the central bank seeks to rein in inflation. at a record high of 6.8% in the 12 months to August.

The Reserve Bank of Australia has interest rates increase for five consecutive months nurture official cash rate to 2.35% from just 0.1% in April in an effort to eliminate the “scourge” of inflation, according to governor Philip Lowe.

Banks have approved increasing borrowing costs through higher lending rates, which currently range from 4% to 5% and are on track to increase further.

Zhang said her repayments would soon double to around AU$16,000 a month and she was worried.

Her tenants are on fixed leases and she can’t raise her rent to cover her new mortgages. Nor does she expect a commensurate pay rise.

“This is not the time to panic, but the feeling of not seeing the light at the end of the tunnel of rising costs is keeping me from sleeping at night,” Zhang said, adding that the central bank had slow response to rising costs.

“I think we had inflation last year, but we don’t see any steps to limit rising costs.”

“In the election [in May], everyone blamed the war or the strikes. It was just a convenient excuse,” she added.

“We’re too late to tame inflation, I don’t have to be an economist to know… those bills when I checked at [supermarket] the counter told me what to expect in the coming months. ”

Zhang said she also cuts costs, including on her favorite takeaways, which is exactly what the RBA wants to see.

But while overall spending could be cut, thus lowering inflation, Australia’s housing sector is now entering a new state of flux where buyers are reluctant to buy due to high loan rates or They are waiting for the price to drop further. And the seller is unlikely to want to sell at a cheaper price.

In other words, the Australian housing market is having a hard time trying to adjust to the new normal.

With house prices in Australia – one of the highest in the world – falling, conditions in Australia will provide some insight to economic watchers globally as interest rates continue to rise.

According to the latest Demographia international housing affordability report for 2022Sydney ranks second after Hong Kong as the most affordable city globally. Melbourne is in fifth place.

Elia Owen, head of residential research at Corelogic, one of Australia’s leading property data providers, said: “There’s certainly a lot of disagreement between buyers and sellers at the moment..

“This can be seen in the average number of days in the market, which stood at 33 days nationally in the three months to August, up from a recent low of 20 days last spring.”

The monthly discount in August was also the biggest since 1983, Corelogic said in its most recent Home Value Index Report.

“Every capital city except Darwin is in a housing downturn, with a similar scenario playing out in the rest of the state, where only South Australia has recorded it,” Corelogic said. the increase in house value during the month”.

Commenting on the latest Corelogic results, Australian economist Marcel Thieliant of Capital Economics said that “a rapid decline in affordability due to rising mortgage rates will result in prices in the eight capital cities falling by at least another 10 percent.”

In Sydney, Australia’s largest city, house prices have fallen more than 7% since house prices started falling at the start of the year, just before interest rates were raised.

But the drop follows a massive nearly 30% rally in the post-Covid recovery that began in late 2020, fueled by stimulus programs to boost spending and supported by low interest rates.

The same pattern can be seen in Melbourne, the country’s second largest city. Since hitting a peak earlier this year, house prices in Melbourne have fallen by almost 5%.

According to CorelogicCurrent clearance rates at auctions in both cities have also closed between 50% and 60% lower in recent weeks, though spring has come, the busiest trading period. of the industry.

Auctions are the most popular way to sell homes in Sydney, Melbourne and parts of Australia and are a key indicator of market sentiment in the property market.

This means that just over half of the properties put up for auction have been sold. While still 30% to 40% above clearance during the peak of the pandemic, they are lower than during the boom years from 2013 to 2017, when clearance rates were consistently at around 70% to 80%.

Lenders to developers and builders such as Australia are listed N1 Holdingssay they are getting feedback that many buyers are not committing to a purchase.

N1 Holdings chief executive Ren Hor Wong said: “Loss of borrowing capacity due to rising interest rates is definitely driving some buyers out of the market. It could be a transition period when potential buyers ability to align their minds with a new budget”.

According to the Australian Bureau of Statistics, the appetite for home loans has also dropped.. They fell 8.5% in July after falling 4.4% in June.

According to mortgage broker Catalyst, there is a “distinct decline in the buying inquiry with the first rate hikes.” Loan sizes were also smaller and first-time homebuyers, who were less able to borrow, withdrew.

But requirements for loans have improved over the past month, as borrowers start accepting higher interest rates and smaller loans, said Catalyst CEO Adrian Lee and head of the lending group. home and SME mortgage loans Stephen Michaels said.