We’ve arrived at a really interesting moment for the Australian housing market.
Last year was a difficult one which saw substantial price declines, very weak turnover into the close, and a sequence of large interest rate rises.
We had seen a little bit of optimism creep back in over the Christmas/New Year period. The break had served most people well and I think many were looking to anticipate the peak in the tightening cycle and maybe look for opportunities.
However, the RBA's first decision this year in February - raising rates by further quarter percentage point and indicating that we clearly have more increases to come – has come as a dose of cold water just prior to the reopening of the market.
It will be a real test in February to see how things wash up, but unfortunately it looks like the soft finish we saw last year is going to continue. There are also signs of an overhang of stock emerging in some markets like Sydney and Melbourne.
So, It looks like being another challenging year ahead.
There are some positives starting to emerge: we’re definitely most of the way through this interest rate tightening cycle, with the peak getting closer.
There are also some encouraging signs around population-driven demand. Net migration inflows have been very strong and that's often a precursor for the next cycle for housing markets in terms of which markets may lead or lag.
But for now, interest rates are still the dominant issue for housing. It won't be until we get clear visibility that the tightening cycle is over, and we start to look towards rate cuts maybe next year, that the market is going to look a lot better, and there is some risk around that.
The inflation side of things is still threatening. The RBA could go further than the additional two rate hikes we are currently expecting, so we're going to have to watch that very closely.