Constantly growing and ever-evolving, the Australian property market is like a living creature. It never remains static for long—and there’s no better example than the past 12 months.
My most recent experience and insights are focused primarily in Melbourne, where I live and work as Head of Sales for Fortis. However, the data shows most of the current property trends and pressures are being seen in capital cities right across Australia.
When assessing the state of the market, whether it’s with Fortis clients, our project partners or within our own team, I always find it useful to focus on three key areas: (1) what has happened over the past year; (2) what’s happening right now; and (3) what’s likely to occur in the next 12-18 months, and why.
Where the market was.
A year is a long time in the property market. Back in October 2021, there was a record rate of buyers on the major real estate websites, clearance rates were close to 80% and days on market were at all-time lows, pretty much across the board—from land subdivisions to luxury developments and everywhere in between. The market was incredibly buoyant with a wave of optimistic buyer sentiment driven in many ways by the economy’s re-emergence from Covid-19, where so many buyers had spent so much time at home, they’d become very focussed on upgrading, something which naturally filtered into the wider market.
At the start of 2022 there was an easing in the market. Buyers were beginning to look towards different things, with less focus on their homes and more on other opportunities such as resuming travel. They were still optimistic, they just had changing priorities. Then came Easter closely followed by the Federal Election. As campaigning kicked into gear during April and polling day approached, buyer and purchaser sentiment dampened somewhat as it often does. Political uncertainty is a powerful force.
Around the same time, consumer confidence weakened further as inflation began to rear its head and the Reserve Bank lifted interest rates for the first time in more than three years. In fact, the past six months have seen more interest rate rises than any other six-month period since the 1990s—something that certainly continues to influence the wider Australian economy.
Looking more specifically at the property market, there was a clear decline in enquiries for several months on both realestate.com and Domain. At one stage, close to 50% of auction listings withdrew from the market as private owners reconsidered their positions. At the same time, however, Fortis was fortunate to experience only minimal drops in demand. Our internal modelling suggests this was due to the premium nature of our developments, where many of our purchasers did not require bank funding to secure their homes.
Where the market is.
There was certainly a softening in the property market following the Federal Election. But there are already ‘green shoots’ emerging. Interestingly, respected property industry analyst, Core Logic, recently reported the strongest clearance rates since May. We’re seeing evidence of this ourselves at Fortis, as buyer confidence returns and the ‘FOMO effect’ increases.
The other topic dominating news cycles, as we touched upon earlier, is interest rates. While the mainstream media is always quick to stoke market hysteria and paint a picture of imminent financial doom, perspective really is everything. Yes, cash rates are trending up as the RBA continues to combat inflation. But let’s not forget they’re still historically low, especially by comparison to pre-pandemic levels—something that should bring tremendous reassurance to property owners, buyers and investors alike.
This is especially the case in the more affluent city-fringe areas where Fortis is most active. Here in Melbourne for example, suburbs such as South Yarra, Brighton and Toorak have seen very minimal impact from the recent interest rates rises as the majority of buyers bring considerable existing equity and, as such, do not require bank funding. Even for those who do, however, the rises in mortgage repayments have been largely nominal. On average, for every $100,000 borrowed homeowners are only paying an additional $100 per month, a situation that’s having a very minimal impact on the high-end property market.
We’re also noticing astute buyers are increasingly locking in lower fixed rates, whilst also taking advantage of having fewer active buyers in the market—a very different scenario to late 2021.
Where the market is going.
No one has a crystal ball. But there are certainly indicators of where things are likely to head next. As I’ve already mentioned, the team here at Fortis believes the current outlook still offers plenty of upsides, certainly at the higher end of the market. We’re continuing to develop in affluent city-fringe locations as a response to this—including Melbourne suburbs such as Richmond, Cremorne, South Melbourne, and Double Bay in Sydney.
Looking more broadly, we’re anticipating three key factors to shape market behaviour in the coming 12-18 months:
1. Overall supply in the Australian property market supply will fall, sharply in some areas, due to rising construction costs and ongoing labour/skills shortages.
2. Demand for high-quality developments will significantly outstrip supply in major cities.
3. Given that demand continues to outstrip supply, we think there is a limited risk of a significant fall in prices and a real risk (for buyers who wait) that prices continue their upward march.
What does this all mean? Simply that right now remains a solid time to buy at the higher end of the market. With prices possibly set to continue rising, there’s considerable incentive to purchase sooner rather than later—be it an existing property or off the plan—particularly as interest rates are unlikely to touch the current low levels again for at least a generation.
It may be tempting to wait until 2023 to try and time the market. However, in our experience the moment you try to pick the bottom of the market you invariably end up missing it. Just as it has always been, the most robust strategy is to bring a long-term growth mindset to property purchasing decisions, focusing on proven fundamentals such as quality, position and timing for your life circumstances.
Ready for your next move? Limited residences remain in our boutique developments in Melbourne. To discuss the final opportunities, please get in touch with me via email.
Kharla Williams
Head of Sales
