Why I think property prices have bottomed
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Why I think property prices have bottomed
Nov 23, 2022 Episode 236
Stuart Wemyss

CoreLogic data indicates that property prices in the 5 largest capital cities have fallen by 7.1% since May, when the RBA started hiking interest rates. Sydney has seen the largest price fall – down by around 10%, and Melbourne has fallen by 6.7%. 

But it’s not all bad news. House prices in Brisbane, Adelaide, and Perth are still materially higher than they were a year ago

I wrote a blog in March in response to fund manager, Christopher Joye’s prediction that property prices would fall 15% to 25% within 2 years if the RBA hiked rates by at least 1%. At the time, it was my view that prices would fall 5% to 7%. This has happened now, and I don’t think we’ll see any more (material) falls for the reasons set out below. 

Supply and demand are more balanced 

One of the reasons that prices have fallen this year is that it’s no longer necessary to overpay to buy a property. Last year, I wrote that the only way to successfully buy a property in 2021 was to overpay. That’s because potential buyers outnumbered potential sellers. 

Buyer demand has fallen (probably due to higher rates, share market volatility and talk of a possible recession) but so has supply i.e., the number of new listings – they are 18% below the 5 year average. As such, the market is relatively balanced (between buyers and sellers) which means there is no need to overpay anymore. Good quality, investment-grade property is still attracting strong buyer demand and is typically selling for fair value. 

Of course, some geographic markets might experience different conditions, such as regional towns and beachside locations. It is possible that some locations may experience larger declines in demand and as such, prices may continue to fall. 

Most borrowers have factored in higher rates 

Most borrowers realised that interest rates would not stay at 2% p.a. forever. Of course, if they were li

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