Is the property market cooling off?

The property market is in the midst of another change, cooling down after several years of amazing heat.

But that doesn't mean either buyers or sellers should panic on hearing about "soaring" interest rates and "plunging" property prices.

We encourage you to keep calm and carry on - and take the temperature of the property market yourself.

What is a cooling property market?

In a cooling property market, figures drop as compared to the hot property market of our pandemic years, for example, that saw all these figures snap into startling overdrive.

But the saying "what goes up, must come down" has never been truer in the 2022 and beyond property market.

So, should you panic?

By no means!

Instead, get out your property market thermometer and let's (really) see what the temperature is.

What are the key indicators of a cooling property market? 

The best way to check the temperature of a property market is to consider the following indicators - and if they're low or falling, this usually indicates the property market cooling off.

• Property prices
• Auction volumes and clearance rates
• Number of listings
• Supply and demand
• Overall factors such as interest rates, inflation, consumer confidence, cost of living and employment levels

It's also important to check these points too:

• Price gaps
• Speed of sales
• Types of buyers

Let's explore some of these factors a little further:

1. Property prices

The potential for property prices to plunge downwards is undoubtedly the favourite panic button of many people at the moment, including big-time industry experts.

This button has buyers thinking they can purchase for a cheaper price - good news but get into the property NOW!!! - while potential sellers are now wondering whether they've missed the boat.

However, neither is true.

As we've said several times recently, we can only encourage both groups again not to panic but instead, to think long term and read between those panic buttons.

Yes, property prices are declining, even in regional areas that have enjoyed high demand from buyers in 2020-2021 - but this doesn't mean our property market will crash anytime soon, if at all.

Certainly, buyers shouldn't expect to buy properties at budget prices while sellers don't need to sit on their hands either.

Indeed, PropertyUpdate's Michael Yardney believes that while many factors influence price growth and we are seeing a downturn phase in the property cycle, some regions may continue to experience strong growth.

However, this growth may be slower than that of 2020-2021 while falls of as much as 10% in other areas will only be short-term.

"Australia’s low mortgage rates continue to underpin very strong growth in property prices in certain markets - in particular Brisbane and Adelaide and very selected regional locations," Mr Yardney said.

"Yet there are still some strong patches in the Melbourne and Sydney property market where A-grade homes and investment-grade properties are still selling well."

CoreLogic's Home Value Index (HVI) report earlier this month certainly found the national index recorded the largest month-on-month decline since 1983.

Australia's property market as a whole also experienced its fourth consecutive month of decline in August.

But here's what the report also stated:

• The month-on-month decline figure was a national one of just -1.6% as compared to the 24.6% national property price rise we experienced between March 2020 and February 2022.
• Even CoreLogic admitted that despite the recent weakness, housing values across most regions remain well above pre-COVID levels.
• CoreLogic also stated that except for Melbourne, home values remain 15% or above the levels recorded in March 2020.

2. Auction clearance rates

The traditionally busy spring property market has only just begun and it's been a slow start, says CoreLogic.

But then, no one really expected the extraordinary figures of late spring and summer 2021 with both CoreLogic and Mr Yardney believing the next few months will be an interesting test for the market.

As well, even a few weeks into September, auction volumes and clearance rates are creeping upwards, especially when compared to early spring 2021, says CoreLogic.

The first weekend of spring saw only 1,823 auctions in total held across the combined capitals; however, this was still a (good) far cry from the 1,423 homes taken to auction at the same time last year, when the country was battling with COVID lockdowns.

However, despite the lockdowns, the final clearance rate in September's first week in 2021 was still 67.7% while this year, we only managed 59.4%.

In preliminary auction figures for the week September 12, CoreLogic reported 1,920 events were held across our capital cities with an initial clearance rate of 61.7%.

But it's already expected that the week commencing September 19 could be the country's busiest auction week since late June, with more than 2,200 auctions currently on the radar across the combined capitals, say CoreLogic.

So, we're getting there.....

3. New listings

CoreLogic also reported this month that just as they should at this time of year, new listings across the nation are on the move upwards.

"In the 28 days to September 4, there were 35,213 new listings advertised across Australia, which is higher than the equivalent period in 2021, 2020 and 2019," CoreLogic explained.

As well, there are further indications that new listings in the coming weeks will "take off further".

At the same time, CoreLogic doesn't believe this spring and summer will be anything like the "bumper" one we experienced last year when vendors were playing ‘catch-up’ as pent-up demand from vendors was unleashed once lockdowns ended.

SQM Research's managing director Louis Christopher is also cautious about what spring will bring to the property market when it comes to new listings.

"According to SQM Research, the number of new listings, which comprises properties that are up for sale for less than 30 days, declined 1.9% to 70,766 in August," Mr Christopher said in a recent article for Your Investment Property.

"Brisbane recorded the biggest drop in new listings at 10.3%, followed by Adelaide (9.7%), and Perth (9.4%)."

4. Interest rates

Interest rates are rising and are now at 2.35% after the Reserve Bank of Australia announced a fifth consecutive month of increases on September 6 - and rates are expected to rise in the short term.

But they won't skyrocket upwards and reach the extraordinary figures we saw in the 1980s-1990s (17.5% in early 1990).

And we've also enjoyed a rate rise "holiday" in the last few years with rates sitting at 0.1% for 18 months.

So if you're taking out a mortgage, by all means, expect rates to rise well into 2023 - but don't panic either.

Mr Yardney said recently that what happens in the short-term to our property market will be at least partly shaped by the speed and extent of interest rate tightenings.

"But we know from recent history that neither the banks, our governments or the RBA want to see a housing market crash and they'd rather support mortgage holders than take over their homes," he said.

5. Inflation, employment and confidence

Inflation along with the cost of living is high right now and as with interest rates, is not expected to change much in the near future.

Buyer confidence - along with the ability to afford pricier homes along with higher rates and bigger bills - is also wavering while vendors are none too sure of what to do next either.

"Consumer confidence has taken a significant hit and that's affecting our housing markets with buyers being more cautious and many taking a wait-and-see approach, while sellers’ confidence is more fragile," Mr Yardney said.

He added that fears of rising inflation, rates and cost of living have also replaced buyer FOMO (fear of missing out).

However, unemployment rates are declining with the RBA explaining in its September cash rate announcement that it was now at 3.4%, the lowest figure in almost 50 years.

There are also many government incentives for first-home buyers and pandemic lockdowns have seen many borrowers putting extra cash towards mortgage repayments, rather than holidays and other extras.

Should I buy in a cooling property market?

Yes!

Remember: the market is cooling but it hasn't crashed.

You could well have to search harder, and more, for the property that's right for you and your budget after the enormous demand of the past few years - to say nothing of little supply in the first place - has left less real estate on the market.

But that's not to say your Mr or Miss Right Property isn't out there.

Don't jump at the first property you see but don't be complacent either, thinking that other buyers have been scared off by the above factors or that vendors will be willing to agree to your affordability level due to FOMO.

Largely, they haven't and they won't.

Stick to the same market factors that have also been crucial when buying: affordability, lifestyle, nearby infrastructure and amenities, and of course, location.

Personally, we liked this quote from a Financial Review article we read recently: "Long-term, quality assets always outlast shorter-term market trends."

Should I sell in a cooling property market?

Yes!

The same quote applies just as much to sellers as it does to buyers.

That being said, it does depend on why you want to sell.

It's an excellent time to sell if you want to move straight into another home and can announce to that vendor that you have cash in hand to purchase.

If these sellers move quickly, they can expect to not lose money in their sale or new purchase.

Either way, sellers should be aware that even desperate, depressed buyers may not have the big money they need to pay above their house weight - especially when this weight includes rising interest rates and bills.

We're not saying you have to drop your ideal sales figure but be aware that you may need to do so, simply to meet the changing market conditions.

We're here to help

Whether you're planning to buy or sell, we at Listing Loop can help you travel the off-market road to do so.

We can also help you refinance, and invest through our sister company, Lending Loop.

So, if in doubt about any of your home-buying plans, sign up at Listing Loop or download our app.

Our off-market and pre-market marketplace give you VIP access to properties so you can get in first.