Realtisan Weekly Recap – Real Estate Market Grapples with Population Growth and Interest Rate Increases

Weekly News Recap

  1. Real Estate Market Faces Tug of War between Population Growth and Rising Interest Rates
  2. Interest Rate Hike Paused! Reserve Bank of Australia Announces No Change in Cash Rate, Maintaining 4.1%
  3. Strong Demands from Real Estate Industry Urges Government to Address Housing Supply Crisis!

Real Estate Market Struggles with Population Growth and Rising Interest Rates

Sydney house prices have rebounded by 6.7% since hitting a low point in January this year, driven by an imbalance between supply and demand.

However, price growth slowed down slightly last month, with an increase of 1.7%, lower than May’s 1.8%. This indicates that the recent interest rate hikes and expectations of further increases have started to impact market confidence.
Tim Lawless, Research Director at CoreLogic, suggests that the slowdown in capital gains may reflect a change in sentiment. With expectations of higher interest rates, increased rates and lower sentiment could affect the number of active buyers and help rebalance the supply-demand dynamics. If we see another rate hike this month or in August, market heat is likely to further cool down.
The auction clearance rate over the weekend also declined, dropping to 71.2%, a decrease of 7.5 percentage points. This is mainly due to an increase in the proportion of properties that did not sell or were withdrawn from the market. The national property transaction rate fell to 70.3%, the lowest level in nine weeks, slightly lower than Melbourne’s 70.1%. Despite rising interest rates, supply shortages and strong population growth continue to exert upward pressure on house prices.
National dwelling values increased by 1.1% in June, marking the fourth consecutive month of recovery, but the growth rate slightly slowed down compared to the previous month’s 1.2%. Melbourne recorded a 0.7% increase in dwelling values, while Brisbane saw a rise of 1.3%.
Paul Bloxham, Chief Economist at HSBC, states that although the growth rate may decelerate, it is unlikely for house prices to reverse the upward trend. Strong population growth and supply shortages continue to drive prices higher, and even with further interest rate increases, significant declines are unlikely to occur.
The supporting role of population growth in the real estate market outweighs the restraining effect of high interest rates. Introducing new supply is quite challenging in a scenario of rising and sustained interest rates. The industry still faces supply constraints, and combined with high interest rates, the construction sector finds it difficult to expand its scale. Interest rates do play a certain role. We believe that although they may slightly dampen the current upward momentum, demand will continue to drive the real estate market with the support of population growth and limited supply.

Pause in Interest Rate Hikes! RBA Announces Maintaining Cash Rate at 4.1% this Month

The Reserve Bank of Australia (RBA) has announced a pause in interest rate hikes, keeping the cash rate unchanged at 4.1%. However, in order to curb inflation, further rate increases may be implemented in the future.

According to a report from Channel Nine News Australia, Governor Philip Lowe attributed the decision to maintain the cash rate stability this month to factors such as inflation and declining productivity, as well as the need to observe additional economic data.
This is the second time since May 2022 that the RBA has decided to keep rates unchanged. In the monetary policy statement, Lowe indicated that further rate hikes may be necessary to bring inflation within the target range of below 3%, depending on economic and inflation developments.
The decision to maintain unchanged interest rates provides the board with more time to assess the economic conditions, economic outlook, and associated risks. Lowe stated, “The board will continue to closely monitor global economic developments, household consumption trends, as well as forecasts for inflation and the labor market. The board remains committed to achieving inflation within the target range and will take necessary measures to achieve this objective.”
Currently, inflation remains at a quarterly announced level of 7%. Graham Cooke, Director of Consumer Research at Finder, described this month’s monetary decision as flipping a coin.
He said, “The latest inflation data provides a strong reason for the central bank to pause the consecutive rate hikes. However, the central bank has repeatedly emphasized the target of lowering inflation to the 2-3% target rate, which we have not yet achieved. While homeowners have been given a breathing space this month, they should be prepared for further rate hikes this year.”
Paul Ryan, Senior Economist at PropTrack, stated that despite 12 interest rate increases by the central bank over the past 15 months, real estate prices remain high. He pointed out that the real estate market has demonstrated remarkable resilience to rate increases, and house prices are expected to continue rising in the coming months.
Market analyst Josh Gilbert believes that the central bank is concerned about the potential economic downturn associated with rapid interest rate hikes.

Real Estate Industry Strongly Demands Government to Address Housing Supply Crisis!

According to the latest ANZ/Property Council survey, the real estate industry’s demand for the government to address national housing supply and affordability has reached a record high.

The supply crisis has become the top priority issue, surpassing tax reform and infrastructure development. 48% of respondents consider it the most important issue facing the federal government, an increase of 7 percentage points from the previous quarter. At the state level, 49% of respondents listed it as the government’s top priority, an increase of 6 percentage points.
ANZ and Property Council state that the housing supply issue is a combination of long-term planning complexities and current economic constraints, driven by population growth, immigration, and rising rents.
Adelaide Timbrell, Senior Economist at ANZ, stated that developers are facing challenges as rising interest rates and cost pressures hinder project progress, despite strong housing demand. For developers, future work plans and demand are not the issue; the challenge lies in meeting the demand with reasonable risk and profit, given limited supplies of materials and labor. There is a substantial backlog of work in the housing sector, putting pressure on certain projects.
Overall confidence remains stable, increasing by 1 point to reach 114, with a score of 100 considered neutral. The quarterly report surveyed 744 real estate professionals, covering various aspects from staffing levels and future job expectations to financing channels.
With the interest rate hiking cycle expected to be nearing its end, there is a slight improvement in rate expectations, although the overall outlook for rates remains pessimistic.
Mike Zorbas, CEO of Property Council, stated that an imperfect planning system is also a barrier to increasing supply. According to the latest analysis by former Reserve Bank of Australia economist Tony Richards, the past 20 years could have seen an additional 1.3 million housing units provided, but expensive zoning, planning, and building approval processes prevented it from happening.
State, regional, and local governments need to responsibly increase the pace of housing supply in various market segments. We need to establish national goals for housing and planning improvements and ensure the Australian Government’s Housing Australia Future Fund receives Senate approval.

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