According to Corelogic figures, home prices are confirming their rebound in March (+ 0.6 % for the 5 capital cities MTD), after a stabilisation in prices in February. Several elements are showing that it could be more than a short term trend : - prices are increasing the most (in Sydney and Melbourne) where they first peaked (respectively in January and February 22), - the rebound is driven by the high end market (which is the most cyclical, first one to decrease, but also the first one to rebound), - the increase is not driven, so far, by any decrease of interest rates or major government incentive (except the change regarding stamp duty for first home buyers in NSW, which may be reversed soon).
Of course, we know there is still a major hurdle which is the fixed rate cliff. Difficult to have a definitive answer to this question. Interesting to note that, so far, there has not been an increase in mortgage delinquency*. So people who had a variable rate mortgage has been able to manage this large increase of interest rates.
Regarding fixed rate cliff, there are probably two different categories of mortgage holders : - the investors, - and the owner-occupiers.
I am not too concerned about most of the owner-occupiers as they have acquired an asset (their property) that they have rarely financially optimised. Probably at least 4 opportunities** to get more income from their home : - build a granny house and rent it, - rent out their property at peak periods and go back to live with their family on a temporary basis, benefiting from high short term rents during these peak periods, - rent out their property on a regular basis and go back to live with family on a more regular basis, - rent 1 or 2 bedrooms in their home.
The situation of investors is more complicated. Unlike the other categories, they do not have opportunities to create additional incomes, as they already rent their properties. So, the only way for them is to increase rents to try to offset the increase of interest costs. But recent studies have shown that, in most cases, it is not enough to offset the financial charge increase (despite the large increase of rents). It was not a surprise to see a recent article in the AFR mentioning that "275,000 investors could struggle to refinance their fixed-rate loans"."Those who own multiple properties face extra pressure as lenders impose stricter borrowing criteria including a minimum rental return".
My point here is not to say, that I am sure that home prices will continue to go up. It is more to open the discussion to see the main elements which could drive the market going forward. My personal opinion is that the 2 major indicators to watch are probably cash rates (decided by RBA) and employment. The other element I'm looking is the trend for supply, which will probably show the first signs of forced selling if this risk materialises.
* according to Apra at the end of Dec 22. ** these opportunities do not exist for every home (depending on size, location...) and every family. For example, regulation is much more favourable in NSW for granny houses.
