Housing market shows clearer signs of slowing and further divergence among states

Interest rate considerations have yet to impact the market, says economist

Housing market shows clearer signs of slowing and further divergence among states


By Mina Martin

Australia’s housing market boom is showing clearer signs of slowing, with sentiment pointing to a decline in turnover through the first half of 2022, according to Westpac’s February Housing Pulse.

Matt Hassan, Westpac senior economist, said the current picture on markets shows a gentle slowing with turnover still running at relatively high levels amid tight conditions in terms of both on-market supply and rental vacancies. Deteriorating affordability, meanwhile, has continued to weigh on buyer sentiment.

“Interest rate considerations have yet to really impact,” Hassan said. “More importantly, the medium-term outlook has shifted materially, with an interest rate tightening cycle now expected to see a broad-based correction phase begin later this year, continuing throughout 2023 and into 2024. Our sentiment-based indicators are likely to capture this shift more fully in coming months.”

On a state-by-state level, Hassan noted three distinct groups forming, reflecting the extent of affordability pressures and susceptibility to higher rates: 

  • NSW and Vic are in the “most sensitive” group, which is already showing signs of price momentum stalling,
  • WA and Tas are in the “little less sensitive group,” with a milder slowdown to date and other factors suggesting they will be less susceptible to weakness, and
  • Qld and SA are in the “likely-to-be-the-least sensitive group,” with price momentum accelerating in recent months, tight markets, and more headroom around affordability.

“While performances will vary, the common shock of a sustained rise in rates will impact all markets over the next few years,” Hassan said. “Housing will in effect become hostage to outcomes across the wider economy, with prospects resting heavily on how successfully policymakers, the RBA in particular, guide Australia through these looming challenges.”

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