Buyers flee “dire” Australian housing market

The steam had well and truly come out of Australia’s housing market before the Reserve Bank of Australia (RBA) commenced its monetary tightening on Tuesday.

While variable mortgage rates had yet to rise, fixed rates – which comprised around half of all borrowing over the pandemic – had already roughly doubled, according to RBA data:

Average Australian mortgage rates

Fixed mortgage rates surged long before the RBA hiked rates.

This surge in fixed mortgage rates, alongside the general unaffordability of Australian housing, had driven mortgage demand sharply lower, which has historically been a leading indicator for house prices:

Mortgage demand and house prices

Falling mortgage growth bearish for house prices.

Not surprisingly, then, sales volumes have fallen significantly from their December quarter peak, “with the quarterly number of home sales nationally estimated to be 14.0% lower relative to the same time a year ago”, according to CoreLogic’s April housing market report.

CoreLogic’s Tim Lawless explained that “with higher inventory levels and less competition, buyers are gradually moving back into the driver’s seat. That means more time to deliberate on their purchase decisions and negotiate on price”.

Looking ahead, Mark Bainey – chief executive of Sydney-based property developer Capio Property Group – believes the outlook for Australian housing is “dire” as the RBA lifts rates and homebuyer demand collapses:

“I think the initial shock of the first interest rate rise in more than a decade will really slow the market and put a handbrake on house prices”.

“The first rate increase will be a line in the sand to show people this is the new economic reality, and it will be a shock for them to experience multiple interest rate rises.”

“Buyer inquiry levels are down 50 per cent at the moment, so demand has essentially collapsed”.

“Inquiries are always the best indicator of where prices are going. If inquiries are going down, then prices are going in the same direction. We’re prepared for it, but I think the outlook for the market is quite dire.”

“Anyone who has bought in the last 12 months is going to be the first in line for some pain through the rate rise cycle”.

“They are a generation of home buyers who have never experienced a rate rise, so the harsh reality of a higher mortgage cost has just hit them.”

Henderson Advocacy buyer’s agent Jack Henderson agrees, saying the contraction in buyer demand has allowed him to secure properties at a heavy discount:

“A lot of the properties that we’re buying right now are around 10 per cent or 15 per cent cheaper than what they would have sold for six months ago because people are just sitting on their hands, scared about what could happen, so there’s less competition”.

Whereas SQM Research managing director, Louis Christopher, has forecast a 7% to 8% fall in Sydney and Melbourne house prices this year amid “a sharp drop in the number of buyers”.

With most economists tipping a 200 basis point increase in mortgage rates, which would lift repayments by more than one-third, Australia’s housing market is clearly cruising for a bruising.

Unconventional Economist


  1. Dire? Maybe for some.

    Outlook is improving for me. Two sons saving and wanting to buy, if this keeps up they can do it without my help either, so if my so-called wealth drops I couldn’t care less. Opportunity for young people. Some hope, just what we need.

  2. JspitzerMEMBER

    Mortgage commitments are a lagging indicator. They tell you what clearance rates told you 3 months ago. Clearances rates been one way since October(seasonally adjusted)
    Nothing is a leading indicator except that trends tend to continue for a long time and usually changed by rate reversals.

  3. pfh007.comMEMBER

    Those home buyers need a large cup of harden up and take a punt.

    Thank goodness that our hotel industry are still crazy brave and willing to drop $40 million on pubs currently generating yields of 3-4%.

    That’s the kind of positivity, when having a punt, that made this country what it is.

      • pfh007.comMEMBER

        I don’t know.

        Commercial property has been much the same though Covid “Work From Home” has taken the edge off their enthusiasm.

        It would appear that the endless rivers of cheap credit have completely detached asset prices from economic gravitational forces.

        It is kind of understandable with residential housing given that demand can be pumped with immigration and it gets loads of other protection from policy but commercial assets don’t have those excuses.

        If the RBA has no choice but to raise rates – say because the Fed has decided to squash US inflation with a world wide credit squeeze – we may see a lot of swimmers in all their glory as the credit tide turns.

        • What do you think would happen to immigration in that scenario?
          ps it occurred to me that pubs are often well situated and maybe they are eying redevelopment with residential megatowers? Sorry I meant mixed-use precinct.

          • pfh007.comMEMBER

            I suspect that there are more than enough aspiration middle class folk in the developing economies including China and India to ensure that whatever target ScoMo or Albo adopts can be reached in a canter. A world economic meltdown is likely to make that even more likely…..”…quick lets get on that big island..”.

            As to whether the Australian government would pick a tighter jobs market and upward pressure on wages over a flood of new unskilled workers, home buyers and mortgage seekers ….well I don’t think that is in doubt.

            I don’t think a lot of the pubs recently sold for gazillions are suitable for residential property developments but anything is possible. I tend to think that it is just a sign that there are no bears left in the forest.

      • pfh007.comMEMBER

        But even expectations of capital gains seem like a bold prediction given that interest rates are at a record low.

        They seem incredibly bullish given that most pubs are already charging through the nose for a steak and chips.

        Clearly they must anticipate being able to extract $50 for a steak and $20 for a schooner in the next few years.

        Those clapped out poker machines players must be expected to dig really deep into their pensions.

  4. From Melissa Lawford in the Daily Telegraph, London:

    “”Online property searches have plunged to their lowest level since the housing market was shut amid new signs house price growth will “grind to a halt”, experts have warned.

    How many people search online for property websites or a new home has been a key indicator for future home purchases and property values. The number fell in April to the lowest level since May 2020, during the first Covid lockdown, according to analysis by Capital Economics, a consultancy. The firm’s Andrew Wishart said this suggested house prices will “grind to a halt” later this year.

    Google searches for property websites Rightmove and Zoopla have fallen steadily since the Bank of England raised the Bank Rate in December 2021. In April, indexed searches fell to 101 – 11.3 percentage points below the level recorded in November and the lowest rate since the depths of the first lockdown.
    This followed a drop in interest in March, when there were 16.3 million searches for Rightmove and Zoopla combined – 18pc lower compared with a year earlier, data from Google Trends showed.

    Rising interest rates have destroyed buyers’ purchasing power just as real incomes have been eaten away by soaring inflation. This has affected their ability to save and made many nervous about stretching themselves financially.

    Mr Wishart said: “The biggest impact [of higher rates] will be on those looking to buy a house with a new mortgage. There are definitely signs demand is starting to ease off.” Quarterly house price growth will likely fall from 3.5pc in the first three months of this year to 0pc by the summer, he added.

    The Bank of England is expected to announce its fourth consecutive interest rate rise today, bringing the Bank Rate up from 0.75pc to 1pc. This will mean a buyer purchasing an average priced home with a 20pc deposit will pay an extra £324 per year on mortgage repayments, according to Hamptons estate agents.

    Larger repayments have already hit buyer demand but will soon affect existing homeowners when their fixed-rated deals expire, and they remortgage at a much higher rate.

    The jump in the energy price cap and the war in Ukraine have also shattered consumer confidence. In April, consumer confidence in personal finances over the next 12 months plunged to a level worse than that recorded during the 2008 financial crisis or the start of the pandemic in 2020, according to the Growth from Knowledge consultants’ index. “”

  5. happy valleyMEMBER

    “Australia’s housing market is clearly cruising for a bruising.”

    But, but let’s spare a thought for the banksters and their bonuses – they’re not going to be able to write as many and enormous ponzi scheme loans.

  6. A good society would concentrate on the physical attributes of housing, not the price manifestations.

    A good society would design its structures to maximise the wellbeing of its people. Structures include houses, hospital buildings, road systems, water and energy supply systems and governance.

    The temperature of a nuclear power generator is controlled by the position of rods inserted into the core. By moving the rods in or out, the system controls the reaction and hence the energy and hence the temperature of the reactor. Too cold and not enough electricity comes out. Too hot and a terrible meltdown occurs.

    In any market price performs a similar function to the nuclear control rods. Higher price forces buyers to use less, and higher price encourages sellers to produce more. Lower price the converse.

    In our housing market we have seen volatile price manifestations. eg a 40% rise followed by a 10% fall. These price movements are fascinating.

    In the nuclear reactor the movements of the control rods is also fascinating. What does it mean if the control rods are swinging wildly from one extreme to another? Is the reactor working properly and proving the perfect amount of electricity and staying at a safe temperature, or is it in danger of failing catastrophically?

    So too in housing what do these price changes mean? Is the market working properly to balance supply and demand and provide excellent shelter to the population and be safe and stable financially, or is it failing to provide decent shelter and financial safety for the people?

  7. Ok good time for an anecdote.
    Husband was chatting to father in law and the said his friends kids had a 75k deposit, could “only” borrow something stupid like 600k, so that wasn’t going to be enough.
    Managed to get another 25k from bank of mum and dad. Went back to the bank expecting they would be able to borrow atleast a few hundred k more based on a 33% increase in deposit. Now, a week later, Max borrowing capacity is actually reduced to 525k. Still stupid amounts but gee..the banks are turning taps off.
    Will apra come to the rescue and turn the taps on again???

  8. Hugh PavletichMEMBER

    New Zealand …

    House prices declining, listings rising, FOMO being replaced by FOOP – the latest survey by Tony Alexander and the REINZ is grim reading … Greg Ninness … Interest Co NZ

    New Zealand’s new dwelling consents / approvals for March a staggering 78% ahead of Australia on a population adjusted basis … employing the ‘consent / approval rate per 1000 population per annum’ standard industry measure … read more via …

    … Its going to be a very wild ride coming down off 9.0 Median Multiple back to reality …

    Median Multiples |,on%20the%20US%20housing%20market.

  9. Meh, there’s absolutely nothing logical about a “market” which devolves into the rabid accumulation of a single asset class.
    It’s not sensible, it’s not logical, it’s not sustainable, it’s not healthy yet it is the “market” we have, it’s the market that our kids have to interact in. it’s the “market” for a basic human right, shelter ffs yet provisioning shelter will cost you almost all the wages that you’ll earn in your entire life, everything, every penny.
    F’it a generation that treats the next generation with this sort of disrespect has earned itself a miserable old age and a painful death. die boomer die!

  10. Yes. [replying to dodgy as]

    Do you think that most of them do it deliberately or through stupidity?
    It is obvious to you and I that young people are being screwed by govt policy but do the older winners also see this? There seems to be a lot of magical thinking around.

    Buying residential property with the maximum the bank will lend has been an extremely successful investment strategy in Australia for probably 50 years or even more. Is it reasonable to expect this to continue forever? It seems permanent.

    Every price doubling, to me, makes current prices that more unstable and likely to crash at some point. But to the average voter each price doubling is further evidence of that regular price doubling is a permanent fact of life.

    • we’re not the first country to have ventured down this dead-end path. Matter of fact the path we’re on is the very well trodden path to poverty, national poverty. We’ll diligently follow the footsteps taken by once great empires, never veering, never questioning, never correcting, we’ll follow this pathway into the abyss. That’s our fate, that’s our reward, there’s no turning around at this stage we passed that threshold a long time ago, all that awaits us is more of the same, more RE wealth coupled to more social / economic poverty, both marching forward in lockstep.
      Eventually our talented offspring will abandon us, eventually our adversaries will shoot us just to put an end to the stench.

        • As far as I’m concerned we’ve simply lost the plot. We’re excited by the increased money when our mind should be horrified by our decreased capability.
          Look at alternate measures of national wealth (like complexity index where our peers are countries likes of Uganda and Yemen)
          look at opportunity and growth indexes (our best possible “strategic” investments are no longer consequential and measured improvements on existing products but rather they’re wild assed bets)
          This is our poverty. this is the present, this is shape of things to come, it’s inevitable, we’ll become less an less capable until we’re considered collectively useless ….and then we’ll wonder why someone simply takes-over and reallocates our precious “houses” , a sad end that in truth has nothing really to do with interest rates.

  11. TheLambKingMEMBER

    While variable mortgage rates had yet to rise, fixed rates – which comprised around half of all borrowing over the pandemic – had already roughly doubled, according to RBA data:

    Not sure why so many people fix their mortgage rate. You are making a bet with the bank on the future direction of the interest rate movement – and the house always wins and always takes an extra margin for the ‘privilege’ AND always price it for the worst case. You pay over the odds for 4 years hoping that you pay off big in the 5th year. It never happens. The banks all learnt their lessons when people were paying 3%-7% mortgages when interest rates hit 17%.

    I have not done the analysis, but I am sure if you looked at the outcome over the last 25+ years of data, the banks will be up over 1% on fixed rate mortgages compared to variable.

    • working class hamMEMBER

      Hedging against crazy rises, but I feel the same. What would the economy look like at 5% variable? How long would it take to get there?

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