Home News Australia’s house prices fall, interest rates rise but analysts say no crash yet

Australia’s house prices fall, interest rates rise but analysts say no crash yet

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Newly built house on Denham Court outside Sydney, Australia. Mortgage interest rates have fallen below 2% in recent years, but interest rates are rising rapidly in Australia.

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Sydney — In a country where property ownership dominates barbecue conversations and dinner partiesAustralia’s Lily Chan, is like many homeowners.

She has a healthy portfolio of real estate, but now faces the biggest threat to her investment: rising interest rates.

Chan, who is in her 40s and works in finance in Sydney, owns a home worth A$3 million (about $2 million), split between two other flats in the city’s popular eastern suburbs. Investing.

To finance it, she took out a bank loan worth about A$3 million (about $2 million).

Mortgage rates have been below 2% for several years, but like many countries, interest rates are rising rapidly in Australia as the central bank tries to keep inflation under control. That’s a record 6.8% in the 12 months to August.

The Reserve Bank of Australia is Five consecutive months of rate hikes increase Official cash rate to 2.35% from just 0.1% in April According to Gov. Philip Lowe, it is trying to rid itself of the “scourge” of inflation.

Not when you’re panicking, but the feeling that you can’t see the end of the tunnel of rising costs is preventing you from getting a good night’s sleep.

Lily Chan

Australian homeowner

Banks are passing on higher borrowing costs to higher lending rates, which are currently hovering between 4% and 5% and are on an upward trajectory.

Zhang said her repayments quickly doubled to about A$16,000 a month, which worries her.

Her tenant has a fixed lease and she cannot raise the rent to cover her new mortgage expenditure. She doesn’t expect a corresponding raise either.

“This is not the time to panic, but the feeling of not seeing the end of the cost tunnel is preventing a good night’s sleep,” he said, adding that the central bank was slow to respond to rising costs. rice field.

“We thought we had already had inflation last year, but we haven’t seen any steps taken to curb rising costs.”

A public auction for a house in Keymag, Sydney’s bayside suburb, in September.

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“during the election [in May], everyone was blaming wars and blockades. It’s just a convenient excuse,” she added.

“We are too late to curb inflation. You don’t need to be an economist to know… [supermarket] The counter has already told us what to expect in the coming months. ”

Zhang said what the RBA wants is also cutting costs such as his favorite takeaway coffee.

However, inflation could be contained as overall spending could be cut, but Australia’s housing sector is currently experiencing high mortgage interest rates that may deter buyers from buying or We are in a new phase of liquidity waiting for prices to fall further.

In other words, the Australian housing market is in the midst of a stalemate trying to adapt to the new normal.

As home prices in Australia, one of the highest in the world, fall, the Australian situation will provide insight for economic watchers around the world as interest rates continue to rise.

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As home prices in Australia, one of the highest in the world, fall, the Australian situation will provide insight for economic watchers around the world as interest rates continue to rise.

According to Demographia’s latest International Housing Affordability Report for 2022:, Sydney ranked second only to Hong Kong as the world’s least expensive city. Melbourne is fifth.

“There is no doubt that the conflict between buyers and sellers is on the rise right now,” said Elia Owen, head of residential research at Corelogic, one of Australia’s leading property data providers..

“This can be seen in the market median, which was 33 days nationally in the three months to August, up from a recent low of 20 days last spring.”

house prices fall

National home prices fell for the fourth straight month as rising borrowing costs began to dampen demand for homes, according to Core Logic..

August’s monthly price drop was also the largest since 1983. Corelogic says in its latest Home Value Index Report:

“All state capitals, except Darwin, are currently experiencing a downturn in their housing markets, with similar scenarios unfolding in other parts of the state, with only the South Australian region experiencing home price declines during the month,” Corelogic said. We are recording an increase in .

Home buyers gather outside the auction of a refurbished terrace in Sydney’s Newtown in September.

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Commenting on Corelogic’s latest results, Marcel Tyriant, Australian economist at Capital Economics “A sharp decline in home prices due to higher mortgage rates could lead to at least another 10% drop in prices in eight capital cities,” it said.

In Sydney, Australia’s largest city, house prices have fallen more than 7% since prices began to unwind at the beginning of the year, just before interest rates were raised.

But the drop comes after a massive price surge of nearly 30% in the post-Covid recovery that began towards the end of 2020. This was underpinned by a stimulus-led program to boost spending and low interest rates.

There are clear signs that demand for new homes is slowing due to rising construction costs, declining consumer confidence and declining existing home prices…

Housing Industry Association

The same pattern can be seen in Melbourne, the country’s second largest city. Melbourne house prices have fallen nearly 5% since prices peaked earlier this year.

According to core logicDespite the arrival of the spring season, the industry’s busiest trading period, current clearance rates at auctions in both cities have also dropped from 50% to 60% in recent weeks.

Since peaking earlier this year, Melbourne house prices have fallen nearly 5%.

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Auctions are the most popular way to sell homes in Sydney, Melbourne and many parts of Australia and are an important indicator of market sentiment in the real estate market.

This means that just over half of the properties put up for auction have been sold. While still higher than the 30% to 40% clearance at the height of the pandemic, he was lower than the boom year of 2017 from 2013, when the clearance rate was consistently around 70% to 80%. I’m here.

Other warning signs

Housing Industry Association: ‘First cash rate hike in almost 30 years will end this building boom’

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Interest in mortgages is also declining, according to the Australian Bureau of Statistics.After falling 4.4% in June, it fell 8.5% in July.

According to mortgage broker Catalyst, “the first rate hike has seen a clear decline in purchase inquiries.” Loan sizes have also shrunk and first-time homebuyers with weaker borrowing power have pulled out.

But loan inquiries improved last month as borrowers accepted higher interest rates and smaller loans, said Adrian Lee, CEO of Catalyst and Stephen, head of the mortgage and small business lending team. says Michaels.

can’t see the crash

One of the most obvious signs of a distressed real estate market is delinquent loans.

The latest update from Fitch Ratings shows that “mortgage delinquency over 30 days” has declined in the second quarter of this year. A record-low unemployment rate set a ceiling for delinquencies, the report said.

However, Fitch noted that there is a three-month delay between the rise in interest rates and the need for mortgage holders to start making more repayments.

The rating agency expects workers, especially in Australia, to remain at full employment, but with their wages not rising accordingly, will continue to be at increased risk of delinquency.

The degree of pressure will also depend on the speed and level of rate hikes and inflation.”

Research group Roy Morgan said earlier this month that about 20% of domestic mortgage holders are “at risk” of “mortgage stress” after the first three rate hikes, but that’s early on. less than the number of borrowers stressed during the global financial crisis in 2009.

“The most likely scenario is that prices continue to fall into the middle of next year, albeit with a soft landing,” Lee and Michaels said.

Asked if a home price “crash” or peak-to-trough drop of 30% similar to the global financial crisis in Australia could occur, Owen said it was unlikely. said.

Mortgage availability has remained fairly stable in Australia due to rising incomes and record low unemployment, Mr Owen said. Mortgage lending in Australia is also cautious, including her 3 percentage point buffer on mortgage utility ratings, she added.

Mortgage availability is fairly stable in Australia, with rising incomes and record low unemployment, and mortgage lending is also cautious, including a 3 percentage point buffer.

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But as recessionary pressures build against rising interest rates, the tight labor market that keeps mortgages being paid off could begin to collapse.

“By the time cash rate increases fully impact mortgage holders, it will create more pain for households, not enough to lead to a housing market crash,” Owen said.

Additionally, a recession is a risk for the Australian housing market, but this risk is partially offset by higher commodity prices that will keep the Australian dollar strong and ease pressure on the Reserve Bank to follow US rate hikes.

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