If you want to see real pain in the property market, look at what’s happening at auctions right now.
The pandemic property slump as measured by auction clearance rates has been outweighed by the current disinterest from buyers to take on a new home. According to data from the respected Cotality property price monitoring group the falls are worse than when Covid hit and are on par with what was seen in 2018 when interest rates were on the rise. And it followed the banks being smashed by the Hayne Royal Commission for bad behaviour. This was a time of special circumstances, just like we have now.
The news that’s emerging from the sector might be a political concern for Treasurer Jim Chalmers who has to hope this price drop era for property isn’t a long one that lasts to the next election. But the economic concern is what the Reserve Bank might do to make a bad situation even worse.
Be clear on this: the negativity that has come out of Chalmers’ Budget on top of three RBA rate rises and Donald Trump’s dragged-out Iran war with its petrol price rises, all makes a good argument for the central bank not to raise interest rates on August 11. It’s time for the Reserve Bank to ‘wait and watch’ because another rate rise could push the economy towards a recession, which is the best way to kill inflation and jobs.
Those three negative factors for buyers looking for a property lead to a negative wealth effect as would-be sellers or simply existing homeowners watch the prices of their prime asset fall. That hurts spending and helps lower inflation.
So, what has Cotality found? Here is a summary:
- The auction clearance rate looks set to be below 50% nationally.
- After the Budget clearance rates fell to the low 40% region.
- Despite the slight improvement the duration of the clearance falls is now longer than the pandemic period.
- This is a national figure, but Cotality’s Tim Lawless says Sydney has been hit hardest, when it comes to the related house price falls.
- Sydney’s preliminary clearance rate over the weekend was 47.4% but this is likely to be lower when the number becomes official. And the number of homes for sale was 24.1% lower than this time last year.
- Melbourne’s clearance rate was 56.5% and the number of homes for sale was down 10.7%.
- And the gloom is spreading, with Lawless reporting that “Adelaide and Brisbane has slipped into a slight downturn this month.”
The AFR’s Lucy Slade talked to Ray White executive Thomas McGlynn, who said sellers “fixated on prices last year” are the ones feeling the heat from this cooling property market.
Bond and interest rate expert Chris Joye, founder of Coolabah Capital, thinks we’re going to see an historically significant house price slump. I’m interviewing Joye today for my podcast called The Switzer Show. He’s made some big calls in his life and a lot have worked out to be right but I hope he’s wrong on this one. Usually, I’d say he’s wrong, but this structural change brought on by the Budget, which will mean property investors won’t get negative gearing or a 50% discount on an existing property, could be a gamechanger for house prices.
And this might only be Act One in a longer-than-usual property drama!
