After an odd start to 2023 for housing markets, what will happen next?

The first quarter of 2023 was largely in line with expectations for residential real estate, with one notable exception.

We expect state-owned property prices to fall 7% to 10% at the start of the year, but it looks like the market will need to change direction significantly over the next nine months for those numbers to come to fruition. .

Real estate prices rose in February and March This is due to the very small volume of new listings on the market.

A continued shortage of inventory across the board combined with a much higher than expected demand for property has pushed prices higher.

Despite the recent drop in sales, last month’s sales were much higher than both March 2019 and March 2020.

With relatively brisk sales activity and a shortage of inventory, buyers didn’t have enough leeway to secure significant discounts, and prices rose slightly in the first three months of the year.

The start of 2023 is an anomaly for the real estate market and raises important questions that will determine what happens next. Photo: NCA

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Will things change in the second quarter of 2023? Let’s pull out the crystal ball and answer five key questions about the housing market.

1. How much will interest rates rise in the future?

Official interest rates will rise by 350 basis points from May 2022 onwards, with the Reserve Bank deciding to pause rate hikes in April.

The RBA has suggested it may need to raise interest rates again in the future. At the very least, mortgage holders are getting reprieve and the hiking cycle seems to be coming to an end or coming to an end.

Just a few months ago, speculation was rife that interest rates would be well over 4%. That doesn’t seem likely to happen now, and mortgage holders are happy.

2. Will the amount of inventory for sale continue to be low?

One of the most surprising developments of the first quarter of this year was the lack of new listings in the market despite countless predictions about mortgage stress and rising defaults.

The spring sales season saw a low volume of new listings and continued to undersupply the market throughout the first quarter of this year, but saw a slight uptick in March.

The feedback we’ve heard is that the continued uncertainty about interest rates is discouraging people from going public, resulting in higher mortgage repayments. High interest rates mean you have to sell before you buy again, and the tight rental market discourages you from doing so.

With interest rates currently on hold, it’s possible that more properties will hit the market as interest rates hold over the next few months.

And if you think you’re going to have trouble paying your mortgage, it’s better to get your property to market sooner while there’s less competition from other vendors and prices remain stable.

Waiting for more inventory to sell means more competition from other vendors.

3. Will price stability in recent months continue?

The lack of salable inventory was the main reason for the unexpected price increase throughout the first quarter of this year.

The direction of property prices from here may depend on future interest rate movements, changes in utility valuation rates by the Australian Prudential Regulatory Authority and the amount of inventory available for sale.

If it becomes clear that interest rates are on hold, more stocks will likely hit the market. With more sales inventory, buyers may have more opportunities to negotiate prices, which can lead to even lower prices.

High demand and low supply are putting upward pressure on house prices.Photo: Agency

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However, if stable interest rates lead to increased buyer demand, the current housing market could be sustained.

4. Will advertised rents continue to rise?

Listed rents continue to rise due to a shortage of rental inventory and very strong demand from tenants.

This is due to shrinking household sizes, few new investors entering the market, large numbers of investors exiting the market, few first-time homebuyers currently entering the market, and due to the rapidly increasing number of international arrivals to the country.

Unfortunately, it seems unlikely that either of these factors will shift into the next quarter. This is bad news for renters.

It has taken years to get to this point where demand far outstrips supply for rentals.It will take time to rectify the situation.

Finding a rental property is becoming an increasingly difficult task for many tenants. Photo: Chris Pavrich/NCA

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The fastest way to improve the balance between supply and demand is to either increase supply by more investors or reduce demand by letting more people out of rent and into their first homes.

Unfortunately, high interest rates reduce borrowing capacity, making it more expensive and difficult for investors.

It also makes it harder for first-time homebuyers to transition from renting, especially since prices have not fallen as much as borrowing capacity.

5. Will rental inventory become even tighter?

I wouldn’t be surprised if rental stocks tighten further in the coming months. We can see that demand is particularly strong and supply is very tight.

These are not situations that will change anytime soon and will eventually require either a massive injection of supply or a significant reduction in demand, neither of which appears imminent.

Given this, it’s reasonable to expect rental inventory supply to decline further in the coming months, making it even tougher for those renting.