Brokers react to record decline in home values

What the trend means for 2023 property market

Brokers react to record decline in home values


By Jayden Fennell

Mortgage brokers across Australia have been quick to respond to the release of new CoreLogic figures showing the largest decline in home values on record.

CoreLogic revealed on Monday, January 7, in its latest daily home value index that house prices fell 8.4% nationally, after peaking in May 2022. The property data analysis company said the new record-breaking price falls had occurred in less than nine months, with further falls expected in the months ahead.

Christian Stevens (pictured above left), of Shore Financial in North Sydney and winner of Broker of the Year – Productivity at the 2022 Australian Mortgage Awards, said the market had corrected itself within the last 12 months, which was typical for any property cycle.

“Off the back of 30% to 60% (metro to regional) increases during the pandemic, you would expect the market to come off after such aggressive growth,” Stevens said.

“Over the last 40 years, Australian property prices have never fallen two years in a row – something to think about when reflecting on these short-term results, with values still significantly higher than they were before the pandemic.”

Looking ahead to 2023, Stevens predicts that the RBA cash rate increases will level out early-to-mid year.

“We will also see property prices across Sydney start to increase again as the market has cash rate cuts priced in from July/August and this will no doubt kickstart the growth again,” he said.

“Anything under $1.5 million will be hot property, given the new annual land tax option for first home buyers (in NSW). The best time to buy would be the next couple of months.”

CoreLogic’s latest HVI showing a decline in values of 8.40% takes the national housing downturn into new territory, breaking the previous record in peak-to-trough declines when home values fell -8.38% between October 2017 and June 2019.

Newcastle broker Dan Gilbert (pictured below), from Australian Property Finance, said he believed the drop in home values was a combined effect of rapidly rising interest rates and vendors expectations remaining above the market.

“There always seems to be a lag time once market sentiment takes place and it seems to happen all of a sudden – if you look at the trends in auction clearance rates and sale prices, it’s been correcting itself for months,” Gilbert said.

“It goes without saying that well-priced properties that offer value will always sell and good quality properties will continue to achieve strong prices in any market.”

Gilbert said his forecast for 2023 is for a year of steady property price growth.

“When rates are high, it’s the time to buy and as a keen property investor I would expect to see other investors also flock to the great opportunities that are out there and will continue to present themselves,” he said. “Rental yields remain strong which will also further encourage investors to come into play.”

Kristy Alam (pictured above right), of Sydney’s mortgage lender FinSecure Finance, said she had noticed demand had dropped following eight consecutive interest rate rises and the increasing pressure on living expenses.

“Overall consumer confidence is down and reduced borrowing power is also a key driver in decreased property prices,” Alam said.

“Borrowing capacity has reduced by 20% to 30% since the first rate hike in May 2022, which has resulted in less buyers in the market which is driving prices down across the nation. Those once waiting for the property market to cool following strong growth of 2020/2021 now face funding restrictions due to reduced borrowing capacity.”

Alam said there would be a further drop in property prices this year before stabilising in the beginning of 2024.

“There are many factors to consider,” she said. “The RBA’s aim to reduce inflation may result in further increases to the cash rate. Greater increase to interest rates along with cost-of-living pressures will directly slow the property market down and first home buyers are generally the first to offload their properties.”

Alam said that was because first home buyers usually had a smaller deposit and with “such a sharp drop in property prices, many of these borrowers would now sit in a negative equity situation”.

North Brisbane Home Loans mortgage broker Luke Ashby (pictured below) said in his opinion, property values had decreased so quickly for several reasons.

“Firstly, incredibly fast interest rate increases, which means people aren’t able to borrow what they could 12 to 18 months ago, so therefore the maximum that people can afford to pay has dropped significantly,” Ashby said. “Inflation being so high and people having less extra cash (that they saved during COVID-19) or borrowing capacity to afford the inflated property prices that come from the ‘COVID boom’.”

Ashby said the property market in 2023 would be interesting and one to watch closely.

“I feel that there are probably a couple more rate rises to come early this year – then hopefully a pause to see what sort of impact this has made to inflation and the economy,” he said.

“This year we will see record numbers of homeowners coming off their fixed rate that they secured mostly between 1.8% to 3% during COVID-19. They will soon be on a rate that may be double what they were paying – this will be interesting and the strong refinance numbers will no doubt continue.”

Brisbane broker David French (pictured below), from The Happy Finance Company, said prices had declined from the peak as the effect of the interest rate rises were felt, which in turn reduced borrowing capacity.

“This, with high inflation, has stretched people’s household budgets so affordability is contributing to the rate of decline,” French said.

“Brisbane has had the strongest market the last couple of years and our fundamentals are still strong. We still have strong migration from NSW and Victoria helping keep demand high, so I don’t expect to see a property crash while the fundamentals and migration stay strong.”

Despite tighter lending conditions and interest rate rises, mortgage brokers Nathan Massie and Andrew Mirams say there are plenty of investors still keen to buy property with no slowdown in the number of investors entering the property market.

“An investment property is an asset,” Massie said. “However, people are often scared of debt, so when a borrower has a debt on their investment property’s mortgage, they want to pay it off as quickly as possible. It is all about changing that mindset and turning it around to make your debt work for you and not against you.”

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