Income concerns will be test for house prices

Tuesday, 14 May 2024

The flat house price growth revealed by the latest Real Estate Institute figures suggests the real test for the market lies ahead, ANZ says.

ANZ senior economist Miles Workman said the market was still on the chilly side, with little change to the house price index and subdued sales.

Nationally, the national median sale price was up 1.3% annually to $790,000 in April, but it dropped from $800,000 in March, according to the institute’s figures.

The institute’s house price index, which smooths out variations that come from sales figures, was down 0.8% nationwide from March, but up 2.8% on the same time last year.

“We think the real test lies ahead. As the labour market continues to loosen, concerns over household income are likely to become a larger driver of housing outcomes than they have been over the past couple of years.”

While sales in April were up 25.3% on the same time last year, market activity remained well below the long-term average, the figures showed.

Indicators for housing momentum in the short term had been on the softer side of expectations recently, and the latest figures maintained that softer vibe, Workman said.

“With the sales to listings ratio ticking down a little further, it suggests soft price momentum will continue through to the end of the September quarter.

A gradual fall in fixed mortgage rates was expected to provide a partial offset to that, but risks to the broader economic outlook were risks to the housing outlook, and to ANZ’s forecast of a 3% rise in prices over 2024 too, he said.

Westpac senior economist Michael Gordon agreed the figures showed April was an unremarkable month for the housing market.

Prices were broadly flat, while sales held above last year’s levels but were below their long-term trend, he said.

“There’s been a notable pick-up in turnover recently, with sales running at 6000 per month. That reflects a surge in new listings in recent months, which has provided more options for buyers.

“But even with the increase in sales, the stock of unsold homes on the market has built up to its highest level since 2015.”

The index had prices nationwide up 2.8% on a year ago, but that year-on-year comparison would get harder in the coming months, as prices saw a reasonable rebound through the middle part of last year, he said.

“We expect the current softness in the housing market will gradually give way to a period of stronger activity, underpinned by a multi-decade high in population growth and policy changes to support investor demand.

“But interest rates are the biggest cyclical driver of prices, and with the Reserve Bank signalling it expects to hold the line on the OCR until early 2025, it may be later this year before we see a meaningful drop in term mortgage rates.”

For Infometrics economist Matthew Allman, the figures showed sales activity continued to be constrained by high mortgage rates, and that was depressing the number of potential buyers in the marketplace.

The stagnation in prices reflected less competition between buyers as the number of houses on the market continued to rise, he said.

“The average length of time on the market remained steady, down 6.5% from this time last year, suggesting that some sellers are adjusting to reduced prices from the smaller pool of buyers.

“Sales remaining broadly steady over the past three months and the latest slight decline in prices reinforce our view that price inflation will remain subdued throughout the remainder of 2024.”

Continued high mortgage rates would limit the number of buyers looking for properties and pressures on the wallets of current homeowners would continue to keep housing stock for sale elevated, he said.