The case for an optimistic outlook

With Gareth Kent

Every major bank and economist has recently predicted doomsday for the property market, and I am completely baffled by this pessimistic viewpoint.

The problem with economists is they often get too close to the numbers and forget about the one true driver in any economy – people. And people are not that predictable.

In my previous column, I discussed how people had culturally changed priorities to adapt to a new normal, and its drivers are “affordability” coupled with “changing lifestyle” expectations. These are people factors influencing different decision-making.

I believe regional markets such as ours are insulated, as people had chosen our region for affordability and lifestyle well before the pandemic.
Therefore, the fundamentals of our property markets will hold; we will not see the decreases that are being published. On Wednesday last week, the ANZ published a prediction that went viral: “the median house price in Australia ($666,461) would contract by $150,000 throughout 2023, before a correction in 2024”. That’s a whopping 22 per cent. Other banks have indicated they expect 10-15 per cent decreases across the country.

It is true that our market, locally, in regional south-west Victoria, has changed. FOMO has left the building! It’s been replaced with a return of the market cap.

Market caps are levels of value that purchasers will not go beyond in specific markets (usually defined by locality), no matter how great or magnificent the property is. The return of market caps also means a return to settlement risk, which is present for properties sold with long-term settlements of 90 days before the interest rate hikes. We will have to weather this short-term pain.

Days on the market have also markedly increased, and clearance rates, although still sitting around the mid-60 per cent range, is well below where they were three months ago.

The market has responded to the cash rate hikes imposed by the Reserve Bank. However, the first signs of easing inflation are here for all to see. Fuel prices have decreased, iceberg lettuce is no longer worth saving for a future house deposit, but best of all, summer is coming.

Unfortunately, our reserve bank only receives its statistics via snail mail, so we will likely see another jump of 0.5 per cent at the September meeting, putting our cash rate at 2.35 per cent. This should translate to variable interest rates (4.3-4.74 per cent), still well below the 10-year average (5.6 per cent). Prudent lending practices imposed by APRA ensure loans have been stress tested at or above 5 per cent, so there is less coffee money, but it’s not doomsday yet.

And did I mention summer is coming? We have just experienced a freezing winter, coupled with a significant drop in the number of listings on the market, which has relatively matched the downgrade in demand. But I suspect that given a few lovely warm days, we will venture out again, and I think this spring and summer selling season will be a bumper. We like to buy our properties in warm weather, as long we don’t have to pay with lettuce leaves! So please don’t believe all you read, even my mumbo-jumbo. Make up your own mind!

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