Senior economist ‘wary’ about housing upturn sustainability

Westpac senior economist Matthew Hassan said the housing market’s resurgence at the start of the year was “unusual” and unexpected, citing various reasons as to why he’s “wary” about the sustainability of this upturn.

“Firstly, the upturns are not being driven by interest rates. Interest rates have moved higher since the start of the year and while we expect them to broadly hold steady through the second half, we’re not seeing rate cuts,” Mr Hassan said.

Mr Hassan stated there is still a risk around interest rates potentially moving higher as the outlook on inflation remains uncertain, which could force the Reserve Bank of Australia (RBA) to move rates higher, while putting further constraints on whether the RBA can ease interest rates in 2024.

“Moreover, consumers don’t expect rates to move lower. Our survey is showing most consumers expect mortgage rates to move higher over the next 12 months, so it’s a pretty unusual recovery in housing that moves ahead despite this interest rate headwind,” Mr Hassan said.

Furthermore, affordability is still stretched for most buyers, with rising rates and cost of finance offsetting any improvements from lower prices, which has been revealed through weak buyer sentiment.

“It’s telling us that as this recovery continues, higher prices are likely to see any owner-occupier demand noveled quite quickly,” Mr Hassan added.

Although there have been price-led upswings in the past, it’s often been hard to sustain, or it becomes problematic when it is sustained, according to Mr Hassan.

“Owner-occupier demand doesn’t look likely to provide a lot of support from here, particularly if we continue to see price gains,” Mr Hassan said.

“What we’ve seen in these cycles in the past is that investor activity or foreign buyer activity can become a more active component of the cycle, and that means it’s maybe more susceptible to a sudden stop in demand or a sudden shift as that demand falls away against a very thing market backdrop.”

Home values up in April

According to CoreLogic’s Housing Chart data for April 2023, national home values rose 1 per cent in the three months to April, marking the first quarterly lift in home values since May 2022.

The property analytics and research company outlined that national home values rose to $9.5 trillion, up from $9.4 trillion in March but remained below its $10 trillion peak in April 2022.

It came after the group’s Home Value Index that showed home values began lifting in March, breaking 10 months of decline.

In addition, the CoreLogic data found that the amount of time it takes to sell property is starting to shift, with the median days on market having decreased from 37 days in the three months to February to 33 days in the three months to April.

Although the number of sales trended seasonally lower, with 35,398 estimated sales nationally for the month, this is still fairly on par with what is typically observed this time of year.

[RELATED: Home values rose to $9.5 trillion in April: CoreLogic]