Herron Todd White
Herron Todd White
Month in ReviewNews

National Residential Overview

Published 13 October 2022
Author: Drew Hendrey

At the start of 2022, many had hoped it was going to be a more typical year post-COVID… however it was anything but typical! 

There is no doubt that the impact of eight consecutive interest rate increases since May has resulted in the spring selling period being non-existent and the residential market in decline. Most markets however are still above pre-pandemic levels. 

While it would appear the RBA is finally starting to slow the rate of increases as it chases down its inflation target, there remains a question of how high rates need to go before it is deemed under control. 

Both Westpac and ANZ came out earlier last month forecasting that the cash rate could increase to at least 3.85 per cent between March and May before plateauing out. While CBA and NAB are remaining more optimistic predicting a peak of 3.1 and 3.6 per cent respectively.” 

No matter who ends up being right, the result is a significant increase in monthly repayments for the average home loan borrower of between $800 and $1000 a month based on a $500,000 loan and depending on which forecast you run with. 

The big question we are being asked is what will this do to home values? 

While all major markets are now in decline, the rate of fall seems to be slowing according to the main research outlets. 

For now, auction clearance rates appear to be remaining relatively strong at just over 60 per cent across the major capital markets and auction volumes are increasing, albeit at least 40 per cent lower than the same time last year. 

With sales volumes remaining relatively low and clearance rates in check, it seems that the balance between supply and demand is stable for now, in turn slowing the fall in values. 

According to the RBA however, around 23 per cent of all home loans were fixed over the past couple of years and are due to convert to variable by the end of 2023. The peak of these for most of the major banks seems to be Quarter 1 or Quarter 2. 

Worryingly, most of these conversions are facing a three to four per cent rate increase. There will be a legitimate strain on households and potentially an increase in distressed sales. 

Also worryingly, a proportion of homeowners who borrowed and fixed at the lowest levels may find themselves paying more than what the serviceability buffer had factored in at the time. The higher rates go the more magnified this becomes. 

While we have not observed any significant month on month change to mortgagee in possession volumes, an increase in default activity early next year could have an adverse impact in some markets, especially those exposed to purchase activity at the peak of the market over the past 12 months. 

Fortunately, according to the ANZ, fewer than one per cent of mortgages are in arrears and 70 per cent of its book is ahead on repayments. More than 40 per cent are 12 months or more ahead. Savings are healthy and unemployment is very low. On top of all that, net overseas migration is back to levels not seen since the early 1980s. 

While 2022 may have been a roller coaster for many, the best way to seek surety in the current market value of your home is to engage with a local market expert at Herron Todd White. 

Drew Hendrey 

Executive Director, Valuation & Advisory