Inflation eases, rates hold as property prices continue to rise
- April 27, 2023
April was a challenging month for sellers who had to navigate their campaigns through a range of public holidays that divided each week and distracted many potential buyers. As a result the auction market saw weak volumes and a patchy clearance rate that recorded a high of 56.1% and a low of 48.9% for the month, according to SQM Research. Encouragingly, property values are increasing, up 1.3% for the March quarter and a similar figure again in April. Underpinning the growth is the low supply of new listings, which Domain notes as being 20% below the five-year average, however across our local markets we’re seeing availability down as much as 50%. Buyer demand is sucking up any quality, well-positioned property with a strong preference for renovated properties evident. Case in point was the impressive sale of 3 The Esplanade, Drummoyne, which sold for $7.050m under the hammer by Dan Patterson and Chad Egan. These agents have secured the one-two punch, selling the two highest priced properties in Drummoyne so far in 2023.
Inflation and interest rates remained the two hot conversational topics in property during April. On that note, annual inflation eased back from 7.8% to 7% during the March quarter. While this remains incredibly high and well outside the RBA’s target band of 2-3%, it’s at least turning in the right direction. In the minds of most market and financial commentators, this result confirmed that inflation has now peaked and the RBA should pause lifting rates in May. Opinions on rates remain divided and while the futures and bonds markets believe the cash rate has hit a peak in the cycle, many others, including the chief economist at JP Morgan, Ben Jarman, hold the view that the RBA will lift one more time. We were told ad nauseum by the media that when 500,000 fixed rate mortgage holders switched to a significantly higher variable rate we would see a surge in defaults and new listings entering the market, however this has failed to materialise.
There is clearly a lot unfolding globally and while many banks have upgraded their property price forecasts, they all come with the caveat that significant ‘head winds’ remain. Reviewing how this year has unfolded, we can certainly take away that when times of economic uncertainty descend, the human reaction is to adopt a ‘wait and see’ approach, which has been missed in every institution’s forecasting. We’re expecting that listing levels will remain low and potentially be exacerbated further as we approach the traditionally quieter winter period. The tight rental market and surging rents are yet more contributing factors to increasing inflation and the lower supply of sales properties. Quite often those selling may explore leasing for a period as they find their ideal new property but with higher rents, tight availability and competitiveness to secure a rental, many people have taken that option off the table. The property market is in a far stronger position than most had predicted just several months ago and as we move into May, we have a clear run for campaigns to come to market without distraction. Let’s see what unfolds.