As of 30th April 2022 - Property Market Update - searchpartyproperty

As of 30th April 2022 – Property Market Update

Last month saw a small decline in the national housing growth rate, which was down 0.1% to 0.6% for April. While we are still seeing growth at the national level, the tide is clearly turning for the Australian property market. Sydney, Melbourne, and Hobart are leading this charge, having all recorded a decline in their monthly median property price.

For Sydney, the 0.2% decline across April marked their third consecutive month of negative growth numbers. In Melbourne, the decline may have been nominal (0.04%), but it means values have technically decreased for three of the last five months. And in Hobart, the 0.3% decline is their first monthly fall in median value in almost two years.

Source: Core Logic

But it is not all bad news, with the remaining capitals all recording monthly growth of around 1% or more. Adelaide and Brisbane continue to be the strongest performing capitals, with both locations achieving annual growth of over 25%. However, it must be noted that even these markets appear to have moved through their cyclical peak growth rate.

Source: Core Logic

Growth is also slowing outside the capitals, with regional property prices increasing 1.4% across April (compared to 1.7% in March). However, advertised stock remains limited (listings are down 42%) and demand remains high (sales are up 20%) in these areas. This disparity should help sustain growth in regional areas, even as other factors, like affordability issues, become more prevalent.

Source: Core Logic

We are seeing the opposite trend on the rental side, with average rents up 9.0% for the year and 2.7% over the last 3 months. This is largely being driven by increasing renter demand for inner city units in Melbourne and Sydney. It is also supporting an improvement in gross rental yields, as growth in average rents outpaces housing value growth.

What lies ahead

The recent decision by the Reserve Bank of Australia (RBA) to increase the cash rate by 0.25% was largely unsurprising. But it does have many market watchers worried, with some commentators predicting plummeting property values and major increases in mortgage distress. However, there are a few factors that make forecasting what comes next a little more complex – this includes:

  • Future rate rises: One of the biggest concerns for most property market analysts is how high interest rates will climb. All signs suggest rates will continue to rise, with some forecasting a further 2% increase by the end of the year. However, this trajectory really depends on multiple local and international economic factors, and how the property market responds to each increase.
  • Recent market performance: According to the RBA, increasing interest rates by 2% could cause property prices to fall by as much as 15%. And since the start of the pandemic, the national median property price has increased by 26.2%. As such, properties bought before the onset of COVID-19 should still come out ahead. And properties bought in the last 2 years should have a loan-to-value ratio of 80% or less, minimising the risk of negative equity.
  • The state of the broader economy: The RBA’s decision was largely a response to the higher-than-expected inflation numbers and low unemployment rate we are currently seeing. This indicates the economy is currently quite strong and most analysts forecast that it will get even stronger (higher wages, lower unemployment, etc.). These are somewhat positive signs for the property market and suggest it should be able to absorb some interest rate increases.
  • Lending restrictions: As part of the application process, mortgage providers must check your ability to make repayments at a higher interest rate. In preparation for the recent rate rise, the RBA increased the serviceability assessment amount from 2.5% to 3% in October. This should mean that most mortgage holders should be able to withstand higher rates without falling into mortgage distress.
  • Repayment buffers: One of the more unique impacts of the pandemic is that it helped many homeowners get further ahead on their mortgage. With holidays and other lifestyle expenses off the table, they chose to focus on paying down their debt quicker. As a result, according to RBA data, the average owner-occupier is now 21 months ahead on their mortgage payments. While this reduces to 19 months if interest rates increase by 2%, this is still solid protection against mortgage distress.

Suburb Spotlight: Indooroopilly (QLD)

Indooroopilly River Walk, Brisbane City Council

Many inner city suburbs are mostly known for one thing, like their ultra-convenient location or thriving hospitality scene. But not Indooroopilly. Its broad appeal is based on truly offering a little something for everyone.

Sitting just 7km south west of Brisbane’s CBD, and featuring a long section of picturesque riverfront, Indooroopilly’s location is ideal. This is complemented by an enviable selection of shopping, dining, sporting, and transport options within the suburb. The area also has a strong community feel and residents enjoy easy access to some of the city’s most prestigious schools.

Understandably, with so much on offer, property in Indooroopilly comes at a premium, with the median house price clocking in at $1.35m. This has been driven by significant recent growth, with prices increasing by over 40% over the last 12 months. However, due to the high cost of houses in the suburb, rental yields are more modest, sitting at about 2.3%.

If rental returns are important to you, a unit may be a more suitable option. The median price for a unit in Indooroopilly has consistently sat at about $500,000 for the last couple of years. But while capital growth has been limited, demand for rentals in the area has seen yields push comfortably above 4.5%.

At Search Party Property, we specialise in developing tailored investment strategies and will work with you to come up with a suitable plan of attack. We also regularly assess your strategy ensuring that it is fit for purpose and delivering the desired results.

Book your 30 minute property investment assessment here.