Interest rates rise and so do Brisbane home prices! What the?!
It’s got to be frustrating work being the RBA right now. Struggling to cool the economy, throwing cold water on the housing market with (almost) monthly rate hikes, then those darned home buyers keep paying higher prices anyway!
So what’s going on that’s seen Brisbane home prices rise 3% in the past 3 months?
The latest stats to the end of June paint a picture of a marketplace where sellers generally – not always – have the upper hand. CoreLogic’s Home Value Index reports steady gains for both our houses and apartments this past quarter. Houses are actually down on this time in 2022, but our apartment prices are up (albeit a tiny 1.5%) for the year.
Home prices rising at the same time as interest rates is not completely unusual – we’ve seen it in a few market cycles. Any real estate agent that suggests they understand the full extent of market dynamics is kidding themselves, but here’s what we’re witnessing:
- A massive shortage of property for sale: Core Logic’s Research Director Tim Lawless: “Through June the flow of new capital city listings was nearly -10% below the previous five-year average and total inventory levels are more than a quarter below average.” Properties for sale are more than 25% down on their long term average – home owners are sitting tight with little apparent pressure or inclination to sell. But…
- Buyers are buying: Tim again: “Our June quarter estimate of capital city sales has increased to be 2.1% above the previous five-year average.” Apparently dismissive of the RBA’s hikes there’s continued strong interest in most corners of our market. You only need attend an open home this weekend to see the crowds and competition for yourself.
- The Bees Nees sales team are witnessing multiple offers on almost every listing (our sample are inner city apartments in a busy price range – $300,000 to $800,000); in fact we’re averaging 2.7 offers every time we make a sale.
- And we’re getting close to our asking prices (Bees Nees sales are averaging a discount of less than 1% from list price to contract) and it’s not uncommon for these multiple offers to produce a sale result that’s above the owner’s asking price.
Yes, this is all happening at a time when home buyers are being swatted away by the big hand of the RBA. Discouraged from borrowing in an attempt to cool inflation. Brisbane’s post-Covid surge in prices did ease from August 2022, but only for a short window of time. By March this year they’d turned upward once more.
Now buyers have a real lack of homes to choose from and some genuine FOMO again. And this heightened demand is meeting some other challenges in a perfect storm for the RBA:
- Much of our sales supply in 2021-22 came from those landlords who chose that time to cash out. Brisbane rents are still climbing in most (but not all) markets. So investors, even those discouraged by rising tenants’ rights and heavy-handed legislation, are being persuaded to hold their Brisbane properties. For now at least.
- Our population is rising. Fast. In 2022 alone we added more than 116,000 new Queenslanders.
- Construction prices continue to spike, so more expensive new homes impact the whole housing market. The Australian Financial Review reports “South-east Queensland will suffer the country’s highest building cost inflation for the next four years.” “Brisbane faces 5.1 per cent growth every year though to 2027.”
- The bad news is we have too few tradies with too much work. And it seems every week we read about another Queensland builder going under, as pressures grow on supply chains. As the AFR points out, “This is further weakening the capacity of a sector that is smaller than the southern states, but which faces the ever-growing demands of public spending and the coming Brisbane 2032 Olympic Games”.
- Then we have a state government with impeccable timing, introducing new energy efficiency and access standards that the Master Builders say will add $20,000 to the cost of a new home. “The latest dwelling approvals continued to fall, dropping a further 23 per cent in April. Now is not the time to add more cost and complexity to new housing, particularly in the face of the current housing crisis. We need to build more homes and they must be affordable.”
Home prices rise as demand grows and supply shrinks.
But even the most optimistic real estate agent couldn’t argue this surge in prices can continue unabated. The RBA will beat the economy into submission and interest rate rises will have to bite at some point, overturning this current buyer optimism and low listings numbers.
Tim Lawless summarises well: “It’s hard to imagine the recent pace of growth in housing values being sustained while sentiment is close to recessionary lows and the full complement of borrowers are yet to experience the rate hiking cycle in full.”
For now Brisbane property owners wanting to sell have a nice little window of high buyer demand and strong prices. Seize the day!