The first quarter of 2023 is on track to deliver some first-rate opportunities for home buyers. But many sellers - especially those listing higher-priced properties - also find themselves well-placed to profit from the current stock shortages and increased dynamism across the market.
2023’s housing market conditions should greatly assist “changeover” buyers looking to both buy and sell. These prospective buyers are well placed with an excellent opportunity to buy property for a reasonable price before the Real Estate market goes through another growth cycle.
Property analysts report that the Australian property market is experiencing its greatest ever peak-to-trough fall with a decline of 8.4% since May 2022. This fall has come after an extraordinary growth spurt in capital-city house prices of around 22% in the boom sales period of 2020- 2021.
The key driver of recent housing market declines were the string of consecutive interest rate rises which raised the cash rate by 300-basis points in eight months. This has led to a rapid reduction in borrowing capacity across the board and dissuaded some potential buyers who are worried about potentially ending up in mortgage stress. Many experts however argue that this decline is actually a plus-factor for people now buying and selling.
It is important to note that in addition to the dramatic interest rate rises, a key factor in the overall softening of median prices is the increase in lower-priced properties on the market. Due to the lack of high proportioned family homes on the market in 2022, much of the recent selling activity has been centred around people offloading their investment properties, holiday homes and other lower-value real estate assets.
Many of these sellers opted to retain their family home, in which they typically hold substantial equity. When there are a higher number of sub 1 million dollar properties on the market, the trend works to drag down median values. Although, the reality stands that the increased demand and price points for larger, more upscale properties can be unaffected by the fall in median prices thus retaining their appeal.
Many buyers still gravitate towards ‘turn-key’ homes they can immediately settle into. The rapid rise in building material costs and supply chain problems across 2022 makes renovating a difficult and expensive prospect. Thus, attractive properties needing no urgent improvement are hot listings across the board.
Nelson Alexander Director Nicholas West expects 2023 will continue to see strong supply lines of lower-priced properties, particularly investment properties. He states that quality family homes will be scarcer, attracting strong price premiums, especially if they fit the turn key criteria.
West discusses how the market will continue to be fairly dynamic. “We are not seeing people say, ‘I’ve got to sell.’ We are not seeing distressed sales. We are seeing sales where people are selling properties that they bought a year ago, but they are making that decision more out of lifestyle choice”
“It will be interesting to see whether there is a bit more financial pressure in the market this year. We do know that a lot of fixed rate housing loans will roll over to more expensive variable rate mortgages. Some fixed loans that are at 1.9% are going to rise to 5.9%. That will be a real wake-up call for some homeowners,” West says.
Another market wildcard includes the Victoria’s new Residential Tenancies Act, which comes into force March 2023. This will require rental providers to upgrade a range of rental properties to meet new minimum standards. Nicholas West predicts that a large number of property investors, who have held their properties for many years, will opt to sell, rather than invest in renovations. He discusses how investors who have held onto property for a long period and made substantial capital gains, may be prepared to sell at a discount, to quickly offload the property.
This trend, coupled with the existing oversupply of more economical real estate, is expected to create buying opportunities aplenty. Although, it is highly likely to be a different story for homes priced above the $1.6 million mark.
Tim Lawless, Research Director for CoreLogic Australia, says during the summer period the number of fresh listings is moving through a dramatic seasonal upswing. However, early indicators suggest the flow of new listings in 2023 is starting relatively softly.
“After a lacklustre listings season through spring and early summer last year, vendors still seem to be reluctant to test the housing market at the start of 2023,” Mr Lawless notes. “The flow of new listings over the past four weeks was 25.9% below the previous five-year average and 20.3% lower than the same period one year prior. Total advertised supply was tracking well below average levels through the final quarter of 2022 and we have started the year with the number of properties listed for sale 31.5% below the previous five-year average”
The question stands, will the market see a seasonal surge in fresh listings? Mr Lawless says new listings normally increase significantly in late January through to late March, with a second wind in the weeks leading up to Easter: “Based on the pre-COVID decade average, ‘week eleven’, roughly mid-March, has typically represented the seasonal peak in the flow of new listings nationally. Early indicators are pointing to a continuation in the relatively mild flow of new listings to the market.”
Pre-listing activity by real estate agents across CoreLogic’s RP Data platform is 15.3% lower across the first 22 days of the month compared with the same period one year earlier. This suggests that vendors will remain wary of listing whilst market conditions tend to favour the buyer.”
Mr West says there are signs that the inner-Melbourne market is starting earlier than normal – in late January. “We definitely have more activity booked for early-2023 than we did in the same period last year,” he states. There is awareness amongst vendors that if they accept a modest price reduction on a property, they may be able to buy a new or replacement property for less.
“Vendors are opting to sell for all kinds of reasons,” Mr West notes. “Some are selling for lifestyle reasons; some are selling for relationship reasons. There are all sorts of variables. But I think vendors and buyers are now more aware of what the market is doing and homeowners are increasingly presenting a value proposition and the buyers are responding.”
Nelson Alexander agents are advising buyers to avoid making assumptions about the direction they think the market may be heading. “Don’t stop looking for a new property, and don’t try to second guess the market,” Nicholas West says. “If you see a property that you like, make a play for it; because we are seeing buyers who procrastinate and wait and then they say, ‘I should have bought that home I saw a month ago.’
For further information on how your property is placed in today’s market, visit our latest Suburb Report here, fill out the form below or reach out to any of Nelson Alexander’s agents for a confidential discussion.
