SQM: No imminent rebound for Aussie property

SQM Research’s managing director, Louis Christopher, has doused hopes for an imminent rebound in the Australian property market:

“It’s starting to look like it’s [auction clearance rates] topped out. If that is the case then what this reveals is that for now [it’s] a weaker market, a market that is very patchy”…

“There’s not strong buyer demand. There are some buyers out there, no question, but it’s still relatively weak in our view. There is a pretty big dividing gap between buyers and sellers…

Mr Christopher said low interest rates would support the market, but the underlying issue of higher unemployment and the contraction in small businesses – many owners of which are often property buyers – would sap confidence and demand.

The sharp reduction in net migration would also have a large impact on underlying demand for buying and renting homes.

“Volumes are still going to be fairly light for the forseeable future. It’s hard to see any major increase in prices at this point,” he said.

“We have seen some strong sales, but we’ve also seen some very weak results. All round, it’s definitely weaker than we started the year off. I don’t think the market in the last two to three weeks has advanced.”

That’s a fair assessment. In my view, there are six key factors that will weigh on the property market in the near term and/or prevent a strong rebound:

  1. Unemployment will remain at high levels for an extended period and household incomes remain stunted.
  2. Lenders will reduce the availability of credit owing to concerns over households’ ability to repay.
  3. Mortgage rates are at their all-time low and unable to fall much (if any) lower. This is a sharp contrast to previous recoveries, which experienced stiff tailwinds from falling mortgage rates.
  4. Immigration will collapse and will likely remain at lower levels for longer, thus removing a significant chunk of housing demand.
  5. Dwelling supply will rise sharply as the large pipeline of apartments is completed and short-term rentals like AirBnb are returned to the long-term market.
  6. Rents are likely to fall heavily on the back of rising supply and increased unemployment.

A lot will depend on how the economy rebounds as it opens back up.

Unconventional Economist
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Comments

  1. Renting anecdata

    Just rented a place for the first time in 9 years. What a pleasant experience.
    Rang my employer (direct manager, actually, this is Senior Exec level) for reference and to confirm wage.

    Wanted 580pw, I went with 550. Nope was the answer. Wanted 6M, nope, 12M. Lease break fee 1 month’s rent if we break <3M, which I'm cool with, if something buyable comes up.

    Anyway, inspected at 3PM, got call at 4.30 it was ours….wonder what that tells you. (Was told they had lots of interest….)

    Anyway, 3/4 acre, lots of shedding, all good.

  2. innocent bystanderMEMBER

    went to a home open today (long w/e here in WA)
    crawling with buyers – at least a dozen groups in the 15mins I was there.
    overpriced house too close to highway noise.
    was back on the market after previous sale fell over due to finance.
    agent: “banks are only lending to people they should, those that shouldn’t have been getting loans before aren’t getting them now”