Across Australia: Sliding Auction Results, Housing Policy & the First Home Buyer Squeeze

On Across Australia, host Chris Smith is joined by Peter O'Malley to examine the sharp decline in auction clearance rates across Sydney and Melbourne, and whether recent federal housing policies are undermining confidence in the property market. The discussion explores the flow-on effects for buyers, sellers, landlords, and renters as affordability pressures continue to mount.

They also discuss:

•  Auction clearance rates falling to decade lows and what that signals for market momentum 
•  Interest rates versus proposed changes to negative gearing and capital gains tax 
•  Why a surge in spring listings could place further downward pressure on prices 
•  Price weakness emerging across both prestige suburbs and Western Sydney 
•  The "wealth effect" and how falling property values can reduce household spending 
•  Rising rents making it harder for tenants to save a deposit despite affordability initiatives 
•  First home buyers leaving the rental market and intensifying competition at the affordable end 
•  Whether current housing policies are achieving their intended outcomes

As always if there is a specific topic you would like for us to cover, please reach out and let us know!    

Transcript

Housing Market Hit By Policy

SPEAKER_00 0:00

Now, if the Albanese government set out to crush the Australian housing market, I tell you what, it's doing a fabulous job. Auction clearance rates have collapsed. Sydney sitting at just thirty-one point nine percent last weekend. Melbourne at thirty-seven point six, both well below where they were this time last year. House prices in Sydney's northern beaches and eastern suburbs are down as much as fifteen percent from their peaks. Melbourne's top end is down even further.

Clearance Rates And Price Falls

SPEAKER_00 0:30

Now, the reasons are no mystery. Higher interest rates, yes. The scrapping of negative gearing on existing homes, yes. The winding back of capital gains tax concessions, yes. And now the surprise deal with the Greens to make all of that happen, and to ban self-managed super funds from borrowing to buy residential property. That's all gone.

Analyst Peter O’Malley Joins

SPEAKER_00 0:49

Let's talk to Peter O'Malley from Harris Partners, is a terrific real estate analyst and understands all of this stuff. Peter, good morning to you. Good morning to you, Chris. If you were deliberately trying to destroy confidence in the Australian housing market, you'd have to give the federal government 10 out of 10, wouldn't you?

SPEAKER_01 1:06

Oh, you certainly would. We're in a rarely seen downturn of this magnitude in Sydney. And uh I felt for a while, Chris, that the federal government would be very comfortable if the uh national housing market looked the way Melbourne currently does, um, which has been under pressure for three or four years under the Andrews Allen government. And the policies that they're putting in place are designed to create more affordable housing in their dialogue, which means uh falling house prices for the rest of us, and that's what we're seeing now.

SPEAKER_00 1:37

Boy. Clearance rates, they're already at decade lows, and we're only at the start of winter. How much worse does this get this year given the change in weather?

SPEAKER_01 1:46

Well, giving you some numbers, there were 900 auctions in Sydney on the weekend with a 31.9% clearance

Winter Lull Then Spring Shock

SPEAKER_01 1:53

rate, as you said. When you get to spring, on some big weekends in spring, you can see anywhere between 1800 and 2,000 properties going to auction in Sydney, Chris. Right. So if you saw auction volumes double uh in this environment, you would see the auction clearance rate probably go below 20%. So only one in five people getting a sale.

SPEAKER_00 2:16

You're you're convinced that during July that will be the case?

SPEAKER_01 2:20

Uh probably um September, I think that'll be the case. Where September? This is an auction period.

SPEAKER_00 2:27

Um sorry? September is usually the start of the auction period.

SPEAKER_01 2:32

Yeah, that's right. Yeah. So winter is low stock levels. We'll see tight stock levels which will act as a support for the market through June, July, and into early August. And the spring stock will begin to come from August onwards. So any vendor, notwithstanding how weak the auction clearance rate is at the moment, any vendor that wants to achieve a sale between now and Christmas, I think is better advised going now, Chris, because it's looking like prices will only deteriorate further.

SPEAKER_00 3:01

Now, go now. Interesting.

Which Suburbs Are Copping It

SPEAKER_00 3:03

So what are we hearing about prices, say, in Sydney, suburbs, that is? We're hearing that, you know, those wealthier suburbs are actually feeling the pinch too.

SPEAKER_01 3:14

Yeah, look, they came out of COVID and kept rising even when interest rates were rising because that's where people were parting their stock market gains. Um so the five to fifteen million dollar segment of the market has been particularly strong from COVID until essentially three, four months ago. Um, the other part of the city that's under due arrest, Chris, is Western Sydney. That had a tremendous, um, a tremendous rally coming out of COVID. Uh, vendors were enjoying price gains of 40 to 50 percent over three years. But my research says that Western parts of Western Sydney are under as much pressure as the prestige market is in the eastern suburbs and the northern beaches.

SPEAKER_00 3:54

Unbelievable. I know this is all supposed to be intentional so that so that properties are more accessible to those who can't afford it, especially first home buyers. But there are problems associated with smashing a market like this, aren't there?

Wealth Effect And Economic Spillover

SPEAKER_01 4:10

Oh, really are, and I think the big one that's still to come, Chris, is what they call the wealth effect. When people see that their primary asset is going down in value, that's when they really tighten up their spending in the broader economy. The unintended consequences of what the government is doing at the moment will ricochet for for the next few years.

SPEAKER_00 4:30

But if people who can afford homes are losing their wealth and their assets are not worth as much as they used to, when it comes time to pass that wealth on to their kids, their kids are going to miss out on what was planned for them. That's that's in contrast to what we've heard from the government. The government wants, you know, the the younger generation

Rents Up First Home Buyer Squeeze

SPEAKER_00 4:53

to make gains.

SPEAKER_01 4:55

Well, all of the policies that they've put in place are driving rents up. Now, as a first home buyer, it's very, very difficult to save for a deposit when your rent goes up 30%, which is what happened what has happened to a lot of first home buyers. Funny enough, Chris, we sold a unit in Ashfield last week. On the first inspection, 26 parties turned up, all of them first home buyers. We took six offers after six days on market, six offers from six buyers, and the property sold for 10% more than what the vendor and myself were expecting in this environment. And the reason that happened is that first home buyers and their with their parents' assistance are trying to escape the rental market, and they're now creating a price bubble at the very bottom end of the market when the broader market is falling. So, this is what I talk about the unintended consequences of what the government's doing. They uh work with modeling, but they don't understand that when you change the rules, you change behaviors.

SPEAKER_00 5:57

Wow. This was not the plan.

SPEAKER_01 6:00

Uh no, it's it's definitely not, and we've got a long way to go before this fully shakes out. We're potentially seeing a restructuring of the Australian property market in a way that no one knows what it looks like at the other end, including the people that are making the changes.

SPEAKER_00 6:14

But philosophically, boy, it looks a lot like socialism.

SPEAKER_01 6:18

It certainly does. It's a war on aspiration, and that is why the government um are going to continue to feel on this issue, because even people that might be left leaning are not in agreement with what they're doing here, um, because it is a war on aspiration, which the the country's never really had before. Well, not in my lifetime, anyway.

SPEAKER_00 6:36

Yeah, no, no, not at all. Peter O'Malley, great to get your analysis of all of that. Thank you for your time. My pleasure. Thanks,

A Bubble At The Bottom End

SPEAKER_00 6:43

Chris. All right, there you go. Uh boy. Um, I don't know what you think of that. You might be out there in the market, maybe helping your young family try and get in to get out of the rental market, like Peter described. Is that what you're seeing? Like this bubble. So first home buyers are not being advantaged by any of these changes, as the treasurer insists. They're being disadvantaged because the pressure is so much from rental prices and therefore the availability of rental accommodation that they've gone to buy and so have a lot of others. And all of a sudden everything's overpriced at that level.