It's an unusual time to be a buyer in the Australian property market, with a diverse range of conditions across the country and affordability remaining tight. We’re here to share how you can manage and make the most of this point in the cycle.
At a glance
During the first half of the year, slowing in property price growth was driven by our largest capital cities.
Affordability remains a headline issue for the housing market and is influencing buyer behaviour. Lower-priced areas have seen more solid growth, likely due to their relative affordability.
Pricing and affordability are a challenge, but conditions are more stable than in recent years. Some borrowers are seeing this as a buying opportunity.
Unpacking the latest market moves
Right now, headlines about the property market might feel contradictory. For example, in some areas, price growth has slowed in recent months, driven by slower growth in Sydney and price falls in Melbourne, and we expect this softer growth overall to continue into the second half of the year. At the same time, affordability is, by some measures, the tightest it’s been in 30 years. How can those two things be true at once?
In short, there are a range of factors that impact both property prices and housing affordability. Here are three important ones at the moment that are contributing to market conditions:
- Long-term strength: Even though the pace of growth has slowed in parts of the country in recent months, broadly speaking, the housing market is resilient in Australia and prices are trending upwards to new record levels. You can see their movement over time in the graph below. This is clearly having an impact on where Australians are buying, with price growth currently tracking higher in more affordable areas.
Source: CoreLogic, Macquarie, May 2024
- The cash rate is (relatively) high: The cash rate is at its highest since late 2011. A higher rate environment generally means borrowing capacity is constrained, which impacts buying decisions. At this stage, we think the cash rate will fall later in the year or early in 2025, but this is highly dependent on factors such as how high the inflation rate is.
- Supply is low and slow: It’s well known that Australia faces a shortage of housing supply, and that’s expected to continue for the foreseeable future. Approvals are weakening, which means the number of houses being built is low relative to our population growth. Even approvals for renovations are tracking sideways. Interestingly, there has also been a fall in Google search activity for ‘renovations’.
Source: ABS, Google, Macquarie, May 2024
How are borrowers responding?
Despite the undoubtedly tight conditions, we are seeing purchasing activity increasing in the current market. We think this is partly down to the relative stability of the interest rate environment. While affordability is constrained, interest rates are in a more stable position than they have been in the last three-to-four years.
“The market is tough, but it’s more stable than in recent years, so borrowers are seeing less fluctuations,” says Head of Direct Home Loans at Macquarie Bank, Pratham Karkal. “The relative stability allows borrowers to consider and pursue a fair market price or value.”
We are also seeing a rise in pre-approvals, which is an assessment a lender gives you on the amount they would loan you, based on your circumstances. While it’s not a guarantee for a home loan, it can give you confidence to negotiate and make an offer on a property.
“Taking steps like pre-approval help you understand your financial position and they also help you act quickly when the time is right to move on an opportunity,” Karkal says.
Steps to prep: tips for long-term success
- Do the legwork early: You will always need to work out your financial position and your borrowing power when you’re buying a property – you'll save time and have more confidence to act if you have this sorted early. Here are a range of calculators you can use.
- Build a team: Sellers have a team of people behind them, you can too as a buyer. Line up the professionals you want to work with well ahead of making an offer – such as a conveyancer, a lender, a broker or a buyer’s agent. It’s their job to support you through important parts of the transaction and spot things on your behalf.
- Move quickly: If you’ve done your homework and your team is ready to move quickly when you find an opportunity. Time is critical in a competitive market and with the right partners and preparation, you’re best placed to secure the property you’ve been searching for.