Slowing down for winter

BY GARETH KENT

Director, Preston Rowe Paterson Geelong

 

Winter is by tradition the slowest period of the year for the property market.

Both residential and commercial buyers and sellers go into an annual hibernation until the new financial year and the new warmer months of spring come around.

Across the Geelong and Bellarine Region listing numbers are down by approximately 30 per cent, and this is somewhat of a saviour to property values.

With so many people playing a watch and wait game and not listing their property, this has made it harder for buyers, and demand for good quality property has remained stable.

Across the nation, property prices rose by an average of 2.3 per cent, accelerating from 1 per cent in the previous month.

The housing recovery is being led by the capital cities with a combined capital city dwelling market value rise of 1.4 per cent compared to the regional lift of 0.5 per cent (stats provided by Corelogic).

However, sales volumes are 21.5 per cent lower this year than last, year on year.

I point to a sale of a residential property that achieved what I think is an amazing result at the start of June; 39 Britania Street, Geelong West, a renovated bungalow with a first-floor extension, on a small lot of 541 sqm, with four bedrooms and two bathrooms.

It was sold by Hodges Jeff Begg for $1,595,000 at auction on June 3.

This is a great result in a quiet market. However, at the time of the sale, there was very little competition on the market. And this property stood head and shoulders above the next best.

If this same property was sold last year, I can name at least five similar properties within the next couple of streets that hit the market in May and sold in early June.

This property would likely have struggled against more fierce competition. This demonstrates that a slower market can provide a great opportunity for sellers.

By now you would be aware of the RBA’s 12th rate rise, bringing the cash rate to 4.1 per cent, and many economists are predicting we are likely to see a continuation of rate rises in the near future.

Interestingly, this does not appear to have had much impact on property values.

Over a quarter of homes sold in Queensland, Victoria and NSW in 2022 were brought with cash; $122.5 billion worth of transactions (25.6 per cent of all homes have no mortgage).

These people are immune to interest rate rises.

Another major factor in why the interest rate handbrake does not seem to be putting a stop to price rises is inflation itself.

Inflation by its very nature means that a dollar today buys you less tomorrow. But traditionally property and fixed assets have been immune to inflation, as they still provide the same amenity they provided yesterday, meaning people will attribute a higher value.

Traditionally inflation has always been a major driver in property price values.

On top of this, we have the continued immigration numbers. In January this year, the government set a target of 700,000 people to come into Australia on immigration or working visas.

However, a large amount refugees are also arriving, which are not included in the predictions. If this continues, we are looking at over a million additional people arriving in Australia just this year.

The problem is we are not building enough houses; total dwelling commencements fell by 8.1 per cent in the month of May nationally.

The government forecasts 178,000 new homes would be built in Australia in 2023, however, in reality, this number is looking to be much lower as builders go into liquidation, and as the cost of the building rises, people are pulling out of new home builds across the country.

The federal government just announced $2 billion for the construction of social housing, but when you do the math, this would provide for approximately only 4,000 apartments of an average size of 60sqm each. Doesn’t really touch the side of the housing issue!

But I remain an optimist. In time, this will all pass. Higher immigration numbers will eventually mean that the unemployment number gets back to circa 6 per cent, inflation will slow and return to circa 2-3 per cent and the cash rate will also drop back to the mid 3s.

So we wait for winter to end; summer is coming.

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