This article is from the Australian Property Journal archive
AUSTRALIA’S auction markets are awakening from their summer slumber, with nearly 1,400 auctions held over the weekend – nearly 1,000 more than the previous week – but a much anticipated interest rate cut won’t mean a “meaningful rally” for the housing market, according to analysts.
Australia’s housing slowdown continued into the new year, and weakened demand, the potential for interest rate cuts, and increased supply are expected to create a buyer’s market in 2025, Domain says. Stretched affordability also contributed to the ease in demand and price growth is now slowing.
“Although the prospect of imminent rate cuts could temporarily buoy buyer sentiment, we don’t expect a meaningful rally in the housing market given that affordability is poised to remain stretched by past standards,” Capital Economics Australia and New Zealand economist Abhijit Surya said in a note.
The past week’s inflation data showed the underlying inflation measure had eased further, within touching distance of the RBA’s target band, and prompting most analysts and three of the four major banks to tip an interest rate cut at the RBA’s next board meeting over February 17th and 18th.
New listings rose by a solid 11% in January, Surya noted.
“However, those gains came on the heels of a protracted slump. As a result, new listings were still around 11% below their previous high in September and 3% below their long-run average. The upshot is that our sales-to-new-listings ratio is on past form consistent with year-on-year house price growth tracking sideways over the next few months,” Surya said.
“Our ‘time on market’ indicator also tells a similar story. Although it suggests that the housing absorption rate has slowed a touch recently, it is on past form consistent with house price growth remaining at around current levels.
“That said, the leading indicators we monitor have recently been understating the weakness in the Australian housing market, and we wouldn’t be surprised if house price growth slowed further before bottoming out.
Surya said the “one saving grace” for the housing market is that Capital Economics expects the Reserve Bank of Australia to start cutting interest rates at its meeting in a fortnight’s time.
“The resulting lift in buyer sentiment could help cushion home sales over the next few months. That said, given our view that the Bank has only limited room to loosen policy, we don’t expect housing affordability to improve markedly over the coming months.
“Indeed, on our forecast, mortgage debt-servicing costs will remain well above their historical norm for the foreseeable future.”
Capital Economics is expecting annual average house price growth of just 2% this year, down from 8% in 2024
Surya’s sentiment echoes other analysts and researchers as a rate cut nears.
“For sellers and real estate industry professionals, just brace yourself for maybe an underwhelming reaction to the first cash rate reduction and possibly a more subdued upswing from successive rate cuts,” CoreLogic’s head of Australian research, Eliza Owen told Australian Property Journal last week.
CoreLogic is expecting a “shallow downturn” in values as interest cuts loom, although the magnitude of a resulting rebound is unlikely to be close to what has been seen in recent years.
Meanwhile, the capital cities recorded a preliminary capital city clearance rate of 65.0% over the weekend, with auction numbers jumping as the school holidays ended and more people return to work in earnest.
That clearance figure is expected to be revised sharply lower after the previous week’s 64.5% preliminary rate came down to 55.6% once all auction numbers were collected, according to CoreLogic.
The 1,399 homes auctioned over the weekend was 313 lower than the same week last year, when 1,712 homes went under the hammer.
Melbourne saw 479 auctions, returning an early clearance rate of 65.4%, slightly up from 64.8% the prior week which was revised down to 55.7%.
Sydney’s 461 auctions brought a preliminary clearance rate of 67.5%, a notable rise from the previous week’s 59.5% that was finalised at 54.2%.
Across the smaller capitals, Brisbane hosted the most auctions with 161 for a preliminary clearance rate of 58.7%, while 156 homes were auctioned in Adelaide, with 61.7% selling so far, and 131 homes auctioned in Canberra for an early clearance rate of 68.7%.
The volume of auctions is set to ramp up further in the coming weeks.
