“The boom is over and property prices are falling, with the pace of decline accelerating,” says Shane Oliver, chief economist at AMP Capital.
Buyers’ agent, Cate Bakos, adds: “It remains a very segmented market with regional and capital market price declines and increases not synchronized. Buyers are increasingly demanding, which means well-renovated properties with amenities are always in high demand.
Shortages of building materials, rising renovation costs and the difficulty of finding experienced and qualified professionals mean that buyers are increasingly reluctant to buy a property that requires additional work, says Bakos.
In Sydney, buyer’s agent Patrick Bright says there is growing ‘argy-bargy’ in the market because the likelihood of prices falling in the coming months means buyers are not willing to pay the asking price.
“It’s mental gymnastics caused by feeling more and more negative,” says Bright.
Prestigious properties with unique features, such as harbor views or proximity to quality schools, continue to attract buyers, particularly from China, Singapore and Hong Kong, according to agents.
Buyers’ agent David Morrell said: ‘Triple A areas are getting stronger and are still seen as a safe haven.
Morrell says he will “put his head in a noose” predicting rate hikes and weakening sentiment “won’t affect Melbourne’s high end one iota.”
Martin Schiller, a sales agent for Savills who specializes in Sydney properties ranging in value from $10 million to $30 million, agrees the high-quality, prestige side of the market remains robust.
“There is some price erosion where price is the only differential in the property versus competing properties in the market,” says Schiller.
According to CoreLogic, which monitors property markets, Sydney clearance rates have fallen below 50%, the worst result since the outbreak of the COVID-19 pandemic in early 2020 imposed restrictions on properties. home inspections and auctions.
Falling sales and prices
Auction numbers were down more than 20% in the country’s combined capitals, including a 40% drop in Melbourne.
There is growing tension in the market, with the Reserve Bank of Australia raising the cash rate to 1.35%, an increase of 0.5 percentage points and the third consecutive rate hike in three months – the consecutive rise in fastest rate in almost 30 years.
AMP Capital’s Oliver expects the cash rate to peak at around 2.5% in the first half of next year with reductions in the second half of next year. He expects prices to fall by around 15-20%.
Martin North, director of Digital Finance Analytics, an independent financial services consultancy, who also expects prices to fall by around 20%, warns that buyer confidence is down and the ability to pay s is rapidly weakening due to rising interest rates.
“If you really need to sell, then you need to sell,” North says of the rising cost of living that is forcing some selling. “Lenders are quietly encouraging struggling homeowners to put their place on the market.”
The number of distressed residential listings jumped more than 10% across New South Wales in June from the previous month as landlords grappled with falling demand and rising costs, according to SQM Research, which monitors real estate markets.
The Gold Coast has the highest number of distressed listings, with 315 homes, followed by Western Australia’s Central Coast with 201 and Queensland’s Sunshine Coast with 185, according to SQM.
Distressed residential property listings occur when a property needs to be sold quickly, often at a discounted price and possible financial loss to the owner.
Recent examples of heavily discounted sales include a three-bedroom detached Victorian cottage in Port Pirie, South Australia, which has been reduced in price from $119,000 to $99,000 after being on the market for over 420 days.
In Seven Hills, about 36 kilometers northwest of Sydney, a six-bedroom, two-bathroom home has seen its price slashed from $20,000 to $930,000 after being on the market for 55 days.
A house in Tartura, about 180 kilometers north of Melbourne, has seen its price reduced from $870,000 to $660,000 after being on the market for 58 days.
In a bid to sell high-profile apartments, developers are offering agents a higher commission and buyers lucrative interior design and furniture packages for penthouses and sub-penthouses in a $3 billion development in South Bank in Melbourne.
Borrowers, who just over a year ago were scrambling to secure rock-bottom fixed-rate mortgages, are switching to variable rates in record numbers, usually at the end of their fixed terms.
General rates for the best one-, three-, and five-year fixed rates that fell below 2% last year for a $1 million borrower with a 20% deposit looking for a 30-year loan have more than doubled.
But there are still high rates for eager borrowers.
For example, the cheapest one-year fixed rate comparison rates (i.e. the actual cost of borrowing after including additional borrowing costs) range from 2.82% for loans Tic:Toc real estate at 4.69% for Beyond Bank.
“Borrowers are still very keen to lock in a low fixed rate,” says Tic:Toc spokeswoman Laura Osti.
Cheap three-year rates include the comparison rate of 4.75% from BCU and 4.48% from Goldfields Money.
The cheapest standard variable comparison rates offered by the big four range from 3.29% to 3.48%.
Australian Finance Group, the country’s largest mortgage aggregator, says the number of borrowers applying for fixed-rate mortgages has fallen from a record 40% this time last year to less than 10 %.
The total value of refinance rose by more than 3% in May, with homeowner refinance hitting an all-time high, according to analysis by the Australian Bureau of Statistics.
Cash back and rebates
Borrowers can negotiate better rates and big cash back. For example, Citi offers $4,000 when the home loan is $750,000 or more for new purchases and refinance applications. The amount rises to $6,000 when the loan is $1 million or more.
The main issues a borrower should consider with a new loan include:
- What fares are offered and are there cash incentives to cover change fees?
- Can additional payments be made before the next rate hike?
- Is the loan transferable so that it can be transferred to another lender?
- Does it include money-saving features, like a clearing account, or allow additional payments?
- What are the fees and charges? Brokers claim that few borrowers breach fixed rates, which can result in high release fees. Other costs to consider include application, settlement, and state government fees, such as mortgage registration, which can cost $500.
Mortgage brokers, such as Christopher Foster-Ramsay, director of Foster Ramsay Finance, say lenders are more likely to negotiate cheaper variable rates for borrowers on packages that also include other features such as waiver charges on credit cards, discounted insurance, and clearing accounts.
Offsetting accounts reduce mortgage interest by paying regular payments or lump sums, such as bonuses, into a savings or checking account.
Some banks allow borrowers to open multiple clearing accounts – one for bills and incurred expenses, and another for current expenses.
Brokers say lenders will negotiate discounts of around 200 basis points off the standard variable rate to attract a new borrower and 120 to 150 basis points to retain an existing borrower.
The attached chart compares the Big Four’s plans, including additional fees and costs, and the banks’ lowest variable rates. Annual fees ranging from $120 to $395.
“The savings in the compensation account should generally cover the costs,” says Foster-Ramsay.
Harder to borrow
The prudential regulator’s 3% buffer also affects borrowing capacity. This means that a borrower with a 4% mortgage will have their ability to repay assessed by a lender at 7%.
“Property buyers have been negatively affected because interest rate increases have not kept pace with price declines,” says AMP’s Oliver. “That means their borrowing power has been reduced, but property prices remain high,” he says.
Agents say this is a growing problem for buyers who have to borrow up to their maximum borrowing limits.
“Typically, upgraders and investors have equity under their belts,” says Bakos, the buyers’ agent. “Those who need to borrow at capacity are under increasing pressure because rising rates could squeeze their budget,” she says.
Investors continue to be drawn to rising rental yields as vacancy rates tighten across the country, agents say.
Sydney’s combined rents have risen by 17.5% over the past year, Brisbane’s by 19% and Melbourne’s by around 15%, according to SQM Research. Investors’ share of new mortgages surged early in the year as many sought an alternative to volatile stock market investments, agents said.