The surprise resurgence in the property market since the start of the year has strengthened and broadened over the last month or so.
Strong auction markets, rising prices, and consumer expectations for those gains to continue are all pointing to further upside in what is a very tight market.
That said, there are reasons to be wary about the sustainability of these gains. Firstly, it's not being driven by interest rate cuts. In fact, most consumers expect rates to move higher rather than lower, and it’s quite unusual for a recovery in housing to progress in the face of this interest rate headwind.
Affordability is also very stretched. For most buyers, the higher cost of finance has more than offset the lower cost of properties over the last year.
More generally, a price-led upswing tends to be harder to sustain and can cause problems if it becomes driven by investors. Further price rises, for example, could see owner occupiers back off again quite quickly.
On balance, we think it’s more likely that prices will be flat over this year, rather than erring towards gains, before we move into an RBA easing cycle in 2024 which will offer the basis for a more sustained upturn.
But certainly the bounce back continues to surprise us, and there are some genuine drivers in terms of population-driven demand for property outstripping supply.
It's a delicately balanced outlook and a lot will hinge on how investors respond to the environment. A lift in investor activity could be an important swing factor for the market.
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