Ray White Chief Economist Nerida Conisbee has identified four core issues that have the potential to bring Australia’s current property market growth to a grinding halt.
Ms Conisbee said a rise in interest rates will certainly have an impact, as housing markets are very sensitive to the cost of finance.
“The more expensive the city, the greater sensitivity to what happens to interest rates,” Ms Consibee explained.
This is why we tend to see Sydney move more closely with interest rate changes, compared to Perth, for example, which moves with the commodities cycle.
“Smaller regional areas are also less sensitive and are more in line with local economic conditions and population growth,” she said.
Ms Conisbee identified the second reason the property market could be impacted was rolling lockdowns.
She explained that while lockdowns are annoying, they don’t seem to be having much of a negative impact on house prices, particularly compared to what happened in 2020 in Melbourne.
“Locking international borders kept us safe and allowed us to live more normally than elsewhere around the world,” Ms Conisbee said.
“This resulted is our economy bouncing back more quickly and in the March quarter, we were the first country to get back to pre-COVID-19 level of our Gross Domestic Product.
“While this has been the case, it’s going to start to become more problematic, particularly now as the rest of the world opens up.”
Thirdly, Ms Conisbee identified increasing mortgage rates and restricting finance as having the potential to create issues in the property market.
“Even if the RBA doesn’t move on the cash rate any time soon, mortgage rates are already starting to creep up for fixed rates, although variable rates continue to decline,” she said.
“This is likely due to the highly competitive mortgage market – even though demand for finance is very strong, it would be hard for a finance provider to increase their mortgage rates without having a significant impact on market share.”
The last reason Ms Conisbee found was the event of a mining and agricultural slowdown.
“Iron ore pricing continues to hit record highs and May saw a record $12.3 billion worth exported to China alone. Meanwhile, Australia’s agricultural sector continues to boom,” she said.
“Australian farmgate production is on track for a record-breaking $66.3 billion a year, driven by higher beef, wool and dairy exports, as well as a sharp recovery in cotton exports.
“An end to these strong mining and agricultural conditions would slow down local economies that rely on them.
“For now however, the rapid recovery in global economic conditions suggests that this will not occur any time soon.”
