Housing bounce on the cards but recovery hinges on rates

The housing market surprised with a strong February but there are mixed views about the path ahead, with high-profile agent John McGrath sensing a turning point.

A surprise lift in home prices in February has split the market, with agents believing opportunities could be emerging as conditions stabilise, while economists are warning a tough economic outlook will dim demand.

National home prices bounced last month, driven by limited supply and continued strong demand, according to the PropTrack Home Price Index. It found that, nationally, prices were up 0.18 per cent in February, with all capitals aside from Hobart seeing prices rebound.

High-profile agent John ­McGrath, CEO of ­McGrath, said there had been a rise in demand across the market.

“Since Christmas we’ve seen a significant increase in buyer activity in Sydney, with online inquiry and open house numbers both spiking since January,” he said. He cited two drivers in the market. “Firstly, listing levels are low so demand is outweighing supply,” he said. “However, the most telling factor is that buyers have sensed that we are at the bottom of the market cycle and they’re keen to get in during 2023 before we see rises in 2024.”

The listed real estate agency boss said buyers had already taken into account expected rate rises. “Buyers have factored in at least two more rate rises to their calculations, which I think is sensible, but they’re buying in most parts of Sydney at a 15 per cent discount to 18 months ago so, in the main, they even each other out,” he said.

Mr McGrath also pointed to the surging rental market, saying prices had jumped by 20 per cent in most areas, driving people to buy. “First-home buyers are trying to get off the rental market and into home ownership if they can,” he said.

Mr McGrath indicated that interest rate rises were coming. “The greatest challenge will be fixed home loans coming off all-time lows and having to refinance at current rates after nine consecutive rises,” he said.

He said this could hit a large number of borrowers and could be another driver for higher listing activity. He suggested the surge in migration could see the market again take off as new entrants settled down.

“With a forecast migration boom of around 300,000 into the country over the next 12 months, it should be more than enough to keep prices at current levels and indeed start upward pressure on values again within 18 months,” he said.

Real estate agency Ray White noted that house prices were back on the move across Sydney. The company’s chief economist, Nerida Conisbee, said a combination of increasing population and housing shortages were probably the main factors.

“Prices are starting to rise and listings remain low, meaning less competition for sellers, so it’s the perfect storm in property,” Ms Conisbee said. She said listings in the three months to the end of February were down 14.1 per cent on the same period last year.

So far at least, the residential property sector is still under pressure, with homes still taking longer to sell and builders pulling back, as economists say the big dip in prices is forecast to continue despite some respite last month.

National residential property listings lifted by 7.4 per cent in February, according to SQM Research, driven by the fact it is taking longer to sell homes.

The rise in property listings, which also heralded the opening of the new property season after the hiatus during the January holidays, came as investment bank Morgan Stanley said home prices were still heading down despite the bump up in February.

“Our view remains for a 20 per cent peak-to-trough price decline and, as such, we believe we are around halfway through this current price correction,” Morgan Stanley said.

Jarden’s listed property analysts said that of all the property sectors, the news flow was most negative for residential, with big developers Mirvac and Stockland posting weak earnings from their housing operations in the first half.

They warned of tough times unless the market corrects itself quicker than they expect, with feedback from developers suggesting that sales momentum would remain poor until lending support emerges and rate stability improves.