This year has followed the usual pattern, but as we emerge from the summer break, we can see that lead indicators are showing some renewed energy in the market.
The Australian residential property market runs to a seasonal cycle that is apparent regardless of what other factors may be at play. There is often a flurry of transactional activity leading up to Christmas, followed by a significant slowing of activity throughout January. This year has followed the usual pattern, but as we emerge from the summer break, we can see that lead indicators are showing some renewed energy in the market. The number of auctions is steadily increasing, and clearance rates are firming in most capital cities.
Residential property listings are on the increase, albeit from a relatively modest starting point. The RBA’s decision in February to cut the cash rate by 25 basis points will deliver relief to mortgage holders. The move was no doubt prompted by January’s underlying inflation rate of 3.2 per cent (which is lower than many expected), and the headline Consumer Price Index which sat at 2.4 per cent, near the midpoint of the Reserve Bank’s target range.
The awakening of the market and this downward move in interest rates are expected to provide a confidence boost to most residential property markets and indeed some purchasers are committing early to get ahead of any increase in prices that may be prompted not only by this cut but potentially others as the year progresses.
But there are other factors at play.
Regional markets continue to demonstrate significant resilience. The regions have an affordability advantage and even with a push to return to the office, flexible working arrangements mean that a wide range of buyers are looking to the regions. The increased demand and a relatively slower increase in supply are underpinning price growth in many regional markets.
In Western Australia, the fortunes of residential property are closely tied to the performance of the mining industry as evidenced by the continued strength of the market in the face of high interest rates. The reduction in interest rates will only serve to support the strength of the market. At the time of writing, an unpredictable tariff regimen is in the news and could have an impact.
One of the most interesting factors affecting property markets is in Victoria. Property taxes in Victoria are playing a significant role in shaping the market and in some market segments, may be more than an offset to any stimulatory impact of the interest rate cut. The increasing incidence of land tax on discretionary markets (second homes or investment properties) is forcing sales and exerting downward pressure on prices as fewer new investors are active purchasers. This effect is particularly evident in high-value coastal locations where property tax bills are higher. First-time homebuyers may see some benefit from reduced competition at the lower price levels, but the market for owner occupiers may see price increases.
As always, the team of Herron Todd White local experts has contributed detailed market updates in this edition of the Month in Review.
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