Downward pressure on prices does not equal price drops
- Written by Tim McKibbin, CEO, Real Estate Institute of NSW
The Reserve Bank did as expected last week but the rate rise talk is building and inevitably brings out commentators suggesting that price declines are a fait accompli.
But there’s an important distinction to note. Downward pressure on prices does not equal price drops. It simply means an easing in upward pressure, most notably fuelled in recent times by low rates and the undersupply of housing.
The latter remains as relevant today as any time in the state’s history and will remain so until a widespread solution is implemented.
The trap for would-be buyers would be to wait for a potential broader price decline only for it never to materialise or do so by only a handful of percentage points.
A strategy of waiting for a price reversal could actually see people price themselves out of the market, as the continuation of subdued growth in the short term is a likely scenario.
More supply is coming, as we’ve seen this weekend past with the number of auctions in Sydney nearly doubling the weekend prior, according to CoreLogic.
The 76.8 percent preliminary clearance rate achieved is a temperature check of where the market is at, and we expect this level to be maintained in coming weeks, even as volumes grow further.
With some economists now forecasting a rate rise as soon as mid-year, the RBA Governor continues to temper the discussion by insisting Australia has time on its side. It’s a good message for mortgage holders and provides confidence to buyers.
History shows that interest rate movements can impact house prices but they are not the sole influence, and often it takes time and a series of adjustments to have an impact.
For vendors, as the economy recovers and immigration resumes, the compounding under supply of housing is perhaps the most important variable to be guided by.
