For much of this calendar year it has felt like there has been a stalemate in the Victorian property markets. This stalemate has been between those who would like to transact, whether to buy or sell, and the prevailing cautious sentiment caused by the unclear trajectory of interest rates. Asset markets, such as property and shares, but particularly property, love stability and a clear economic path forward to thrive. In the case of property, it is usually because of the large dollar amounts involved. People want to be sure they are doing the right thing and look around for signs of assurance to make this decision. For the first time in 2024 we are now starting to see signs emerge that will provide market participants with some assurance moving forward. We have this month signalling a tangible change in direction for interest rates since they started to rise in March 2022. This follows interest rate cuts in Canada, New Zealand, United Kingdom, Europe and some Scandinavian countries already this year.
In Australia, we have just seen the RBA keep rates on hold for their seventh straight meeting but for the first time it appears the language has changed to when the RBA will cut, not if they will cut. At writing the financial markets were pricing in an 88% chance of a cut in December and 100% chance in February. This was reinforced after the RBA announcement when it was reported that core inflation dropped from 3.8% to 3.4%, getting much closer to the preferred 2% – 3% range.
For many property market participants it is less about the interest rate number and much more about the trend. Interest rates directly affect property prices and crudely when interest rates top out, property prices bottom out. As a buyers financial capability increases it allows them to pay more for a property that they love (we witnessed this regularly during the Covid markets) but it can also increase the number of buyers in the market.
How interest rate stability will affect prices and sales is yet to be seen and forecasting this has become more opaque because of the new element of increased land taxes. The application of land taxes is not uniform as it does not apply to properties used as a principal place of residence. Therefore, for the first time, when appraising properties, we now have to differentiate between likelihood of the future use of the property and how this is likely to affect its sale value. It also affects properties in different price points disproportionately, where at the lower price points it is an annoyance, at the higher price points it can be prohibitive if the property is likely to be liable, ie its unlikely to be used as a permanent home.
We know that the emotional attachment to the coast remains as strong as ever as we can see it through our web traffic numbers. To attract significant interest at present the offering has to be compelling. This could mean in terms of the properties appeal or in terms of price and often combination of both. There are plenty of potential buyers who in principle like the idea of a coastal property and are actively visiting open for inspections etc, however they have to feel compelled to act. Hopefully with the interest rate outlook stabilising those sitting in on the fence will be comfortable enough to pursue their coastal dream.