McGrath sees house price growth heading back to normal levels

After unveiling a 60 per cent jump in first-half earnings, the real estate agency said the housing market will keep rising this year, with a likelihood of falls in 2023.

McGrath chief executive Eddie Law, who is stepping down in August.

The departing boss of real estate agency McGrath, Eddie Law, sees the housing market coming back to more normal levels of price growth after a period of exceptional gains.

The former banker believes the emergence of inflation and the ending of quantitative easing by governments around the world, along with rising rates, will temper rises in property values this year.

Mr Law said the general consensus was that 2022 could see growth of five to nine per cent, although falls were not a prospect for this year.

“If there are concerns, the concerns are in relation to 2023,” Mr Law said.

“For 2022 the consensus is for a more what I call sustainable level of growth.”

Assuming inflation rose then he said growth ranging from four to six per cent was healthy.

“My concern would be if we started doing the 10 per cent, 15 per cent, 20 per cent annual increases, then I’d start to get worried,” Mr Law said.

But he is not concerned about the interruption of the federal election.

“At worst, that causes partial inertia, but not a collapse,” he said.

McGrath on Monday unveiled a 60 per cent rise in first half underlying earnings before interest, taxes, depreciation, and amortisation, from $6.6m in the period last year to $10.6m.

The earnings came in at the top end of the guidance range provided at an annual meeting last November.

The company’s net profit dipped to $6.9m as the previous first half was boosted by one-off items like the sale of its Parramatta office and JobKeeper support of about $4m.

Mr Law said the strong results showed the company’s profitable growth trajectory as he prepares to hand over in August. The company has grown to 108 offices on the east coast and had more than $40m in the bank at the end of 2021. It is still chasing new growth opportunities but has also switched on its buyback.

“The performance of the group continued to be very strong despite the operational challenges presented by Covid restrictions,” Mr Law said.

The number of properties sold by the McGrath network rose 13 per cent to 7797 properties, with the value growing 42 per cent to $10.8bn during the half.

“We’ve got a healthy pipeline of listings building up, and that’s certainly been evidenced in the market recovery in February,” Mr Law said.

Company founder and executive director John McGrath cited the firm’s teams of agents and property managers as a key difference against its competitors.

“And whenever the market shifts in the future we have the experienced team to continue to deliver sellers and landlords superior results,” he said.

McGrath declared a 1c per share, fully franked interim dividend as well as a 1.5c per share special dividend after selling down a stake in the Oxygen Home Loan business and from the sale of Parramatta office.

McGrath has a 45 per cent equity position in tech-focused Oxygen Home Loans and a recent investment of $6.5m in digital insurance start-up Honey Insurance. It has also taken stakes in other tech-focused companies.

Mr McGrath said the company strongly believed in the ongoing digitisation of the real estate sales process to remove friction, speed up the process and deliver both buyers and sellers a better outcome.

After two boom years McGrath is expecting a slower underlying EBITDA growth in the current half compared with the 60 per cent jump in the last half.

McGrath shares jumped 3.9 per cent to 66 on the ASX in late trading.