Chapter 1: What recent changes have occurred in Australia's interest rates?
It's The Real Estate Podcast across every state, city and town of Australia. And welcome to another episode of The Real Estate Podcast available on iHeartRadio every morning, also on Spotify and Apple and wherever you get your podcasts from. Well, it's a Wednesday morning, the day after another rate hike from the RBA. It's the third day of August for 2022.
And yes, the Reserve Bank has increased the interest rates for the fourth month in a row, raising its cash rate target by half a percentage point. The RBA has now lifted its benchmark interest rate by 1.75 percentage points since its first rate rise in May, with the cash rate now sitting at 1.85%. So what does it mean?
Well, I guess you're starting to look at those numbers, probably did them overnight, but if you've got a $500,000 mortgage... After yesterday's rise, you'll be paying $140 extra, $750,000 loan. It's $211,000. But if you're on a million dollars, if you've got a million dollar mortgage, and I can tell you that there's more people with these loans than you think around Australia.
If you combine the May, June, July and August rate rise, that is a shade under $950 that people are having to find, which is an awful lot of money. If you look at the $750,000 loan with those four hikes, That is $708 and the $500,000 loan with those combined hikes, $472. So it is going up and up. And coming next, I'll give you some of the press comments from Philip Lowe yesterday.
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All right, let's have a look at some of those comments from the Reserve Bank Governor, Philip Lowe, who says the board is committed to doing what is necessary to ensure that inflation in Australia returns to target over time. He also said that the path to achieve this balance is a narrow one and clouded in uncertainty, not least because of global developments.
He went on to say yesterday that the outlook for global economic growth has been downgraded due to pressures on real incomes from higher inflation, the tightening of monetary policy in most countries, Russia's invasion – of course we've talked a lot about that – of Ukraine and the COVID containment measures in China, which of course is causing a real headache with that supply chain.
And lastly, Philip Lowe said the size and timing of future interest rate increases will be guided by the incoming data and the board's assessment of the outlook for inflation and the labour market. That all unfolded yesterday afternoon. Coming up next, we're going to take a break from talking about those rises. Eliza Owen is here from CoreLogic.
She is the head of research in Australia, and we're going to be having a look at the clearance rates around the country to see who is performing best or worst.
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Chapter 2: How have clearance rates changed in the Australian property market?
Grab your coffee and switch on your real estate breakfast every weekday morning from 6.30. It's the main centre forecast with propertybuyer.com.au. Alright, let's check on your weather around Australia. In Sydney today, cloud is clearing to a mainly dry day and your high of 23 degrees. Melbourne, expect a few showers. The wind is going to ease but it's going to be warm. 19 is your forecast top.
Brisbane, a sunny Wednesday is in store, 24 degrees. And in Perth, showers and possibly heavy and your high of 17 degrees. It's the Real Estate Podcast across Australia, seven days a week. Well, a few days ago, CoreLogic's quarterly auction market review was out, not painting a pretty picture with buyer sentiment down and clearance rates lower over the June quarter.
Now, the report shows that 31,439 auctions were held in the three months to June, following the busiest March quarter on record when nearly 24,000 homes went under the hammer. Interestingly, the auction volumes over the June 2022 quarter were the second highest on record for a June quarter, but the clearance rate was substantially lower.
So let's welcome in this morning Eliza Owen, who is the Head of Research Australia at CoreLogic. And good morning, Eliza. Great to have you back on The Real Estate Breakfast. Good morning. Thanks for having me. So on one hand, we have a June quarter record, but the clearance rate way down. The combined capital city clearance rate hit a record high of 80% in March 2021.
But since then, there has been this gradual decline.
That's right. Over the June quarter, we saw the clearance rate come down to about 61% across the combined capital cities, and that's down from 76% in the June quarter of the previous year. And even over the past few weeks through July, we've observed that combined capital city clearance rate fall even further still. It's now sitting in that 50% range.
If you look at cities like Sydney and Melbourne, Those are starting to show weaker clearance rates still with Sydney averaging about 53% over the past few weeks.
You know, it's a good point too, because you look at the quarters, but so much is happening in between the quarters. It's almost like it's outdated by the time you get there at the end of a quarter.
Yeah.
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Chapter 3: What insights does Eliza Owen provide about auction volumes?
And I think that's the good thing about auction data, right? Is it is that high frequency pulse that we have on the property market. So, week by week, that actually comes out as quite highly correlated with movements in property prices.
And indeed, these auction figures corroborate that story of higher levels of supply, buyers falling away, and vendors having to come down on their price expectations.
And let's have a look at Melbourne. Melbourne was the busiest auction market with 13,818 homes taken to auction, followed by Sydney with 11,119. Now, the trend towards lower clearance rate has been most visible in Sydney and Melbourne. where housing values are now falling and advertised stock levels are back to above average levels.
What is your main takeaway for Sydney and Melbourne from these numbers right now?
Yeah, I mean, I guess this reinforces what we're seeing across the CoreLogic Home Value Index, which measures property values across the market. It reinforces what we're seeing in the time it's taking properties to sell by private treaty and vendor discounting rates.
It all points to a steeper decline in property markets across Sydney and Melbourne, particularly the sort of central and high-end markets of these cities. And they tend to lead the property cycle. They will be the first to see declines during a downswing. And often they see more volatile movements during a downswing as well. So Sydney and Melbourne tend to have higher highs, lower lows.
They also are a bit of a bellwether for the other capital cities. If you look at what's happening in the daily CoreLogic Home Value Index, we measure the rolling monthly change on that daily metric. That's also shown that since the increase in interest rates, movements in capital city home values have deteriorated and Brisbane has now ticked into negative territory as well.
So when the month end results come out, we would expect to see that that is going to be the third capital city well into the downswing.
And the clearance rates are also trending lower, as you say, like a Brisbane. Also Adelaide is in there. I mean, these two regions have had it for so good for such a long, sustained period of time, haven't they?
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Chapter 4: How do Sydney and Melbourne's clearance rates compare?
In the case of Adelaide, it's still in growth phase, but the rate of growth is slowing right down. So we would probably expect those markets to follow Sydney and Melbourne into a bit of a downswing. The difference, I think, is that they're not going to see as much of a downswing as what we might see in Sydney and Melbourne. Interestingly, these aren't traditional auction markets either.
For Adelaide in particular, this period has seen a relatively high volume of auctions. I think that vendors might start pivoting more towards private treaty as we come into a softer housing market environment.
Now let's have a look at the number of auctions held in winter. It's normally trending lower due to the season, but this could be worse this year as the housing market moves into this downturn. So are you predicting at this moment in time vendors opting to sell by private treaty rather than by auctions?
Because it's interesting with what you just said, given the fact that Adelaide is having more auctions.
Yeah, so I think those non-traditional auction markets probably saw a bit of a boom in auction activity over this really unique upswing. You know, agents regard the auction method as a way to drum up a lot of excitement about a property when the market is hot. When the market is cooling down, it's a different story.
You don't want that public environment with a lot of people sharing the sentiment that this property isn't worth as much or, you know, there's no sort of urgency around purchasing property. And even in the pretty decent amount of listings coming onto the market for winter, but less of them are in the form of an auction.
So definitely seeing more of that pivot to the private treaty method now, which is another indicator that we would come to expect when market conditions are softening.
And of course, last week, Eliza, it was a busy week. The inflationary number 6.1%. We're being told that the September quarter, it's not likely to improve. People are having to just continually tighten the belts. We've got all sorts of money issues around when people are coming off these fixed term rates next year. So still a worrying time.
Yeah, there are certainly some headwinds for the property market going forward. The high inflationary environment has prompted pretty steep and successive heights in the cash rate. And the higher the interest rate, ultimately the more downward pressure that's going to put on the property market. There's some early signs, particularly globally, that the inflationary situation is starting to turn.
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Chapter 5: What factors are influencing property values in Sydney and Melbourne?
So ultimately, that's going to help lower aggregate demand. And even with the June quarter inflation results, the quarterly figure of just under 2% was a little bit lower than what we saw in the March quarter. So even though on that annual basis inflation is at the highest level since the 1990s, I think there are some early signs that it's starting to ease a little bit.
It's going to take a bit of time for the RBA to get back to target. I don't know. I'm thinking there could be some offsetting factors for the headwinds that we're seeing at the moment. Another important factor is that the rental market is also quite strong. As national property values have fallen for the past few months, we've continued to see increases in the value of rents.
This could have the effect of attracting more investors to the property market and offset some of the declines in demand that we're seeing from the owner-occupier space.
All right. Well, we'll leave it there. Certainly interesting times. Eliza, thank you so much for coming on to The Real Estate Podcast this morning. Thanks again. We connect you to the best real estate information across Australia. The Real Estate Podcast.