While there is still no change to the supply trend (next WE, the number of auctions are expected to decrease by 29 % yoy, according to last figures from Corelogic), interesting to have a look at the last demand figures, based on new mortgage commitments which will be published tomorrow by ABS. Looking at the last auction results (now regularly above 70 % clearance rates), demand has remained quite high during the last weeks. Obviously, the demand is quite solid, as we can see price acceleration both in capital cities and regional areas and seems to come from different categories of buyers.
As there is a real possibility that more interest rates are coming in Australia, quite interesting to assess what part of demand is really affected by interest rates. Unlike the US, where now cash buyers are estimated to represent 28 % of the buyers, I suspect that this part of demand (cash buyers) is rather limited in Australia*.
Anyway, there is probably a large part of the demand which has a limited sensibility to interest rates, in particular foreigners, first home buyers (when they receive a significant help from their family) and downsizers (if they sell their existing house first). Upsizers are also not much affected, as most of them have accumulated large equities in their existing home (unless there is a significant difference of value between their new home and the existing one).
According to me, the most impacted by interest rate rises are the investors (who can't fully pass into rents the interest rate increases) and the first home buyers (the ones who receive a limited help from government and families). These last 2 categories represent a significant part of the demand and could explain why the level of transactions are now quite limited as these 2 categories are struggling (or don't want to buy any more).
My point here is not to say that there is no sensibility to interest rates, as every increase in interest rates is putting more pressure on households (on variable rates, the large majority).
Obviously, the increase of interest rates has also an impact on supply, as struggling households may be forced to sell their homes. The probable increase of interest rates next week will be another test to see how supply is responding. We should have a rather quick answer via the number of listings. In fact, interest rate had a negative impact on supply so far, by limiting the level of construction (both in Australia and other countries).
* quite interested if someone has a figure about the % of home cash buyers in Australia.
