Surviving the higher interest rate drag - November 2024

By Rich Harvey, CEO & Founder, propertybuyer.com.au

For decades, the New South Wales Central Coast region was in a property market holding pattern. It was flying under the radar of homebuyers and investors alike. But COVID’s significant upheaval brought the region into the limelight. Now, a raft of drivers across the political and economic spectrum will deliver exciting times to the Central Coast – and those who own property will be among the biggest beneficiaries.
Anthony Knight, Principal buyers’ advocate for Propertybuyer on the Central Coast, has lived in the region for decades. We recently chatted about the region and why he’s excited about what’s to come.

This is usually the time of year when headlines are crowing about a bumper spring in property markets across the country, with warmer weather enticing sellers to put their homes on the market and eager buyers venturing out with gusto to buy them. But lately, there’s an unusual sense of pessimism creeping into the market - and it’s not just in the media, which certainly loves a bad news story.

Some sellers are rushing to market. More buyers are taking their time looking or sitting on their hands entirely. Prices are sliding in some markets or plateauing in others. This is not the typical spring, that’s for sure.

The culprit, in my opinion, is interest rates. Are they going up again? Is the inflation recovery on hold? When might there be some relief for struggling borrowers? There are plenty of big unanswered questions on our collective mind.

Forget the noise. Those investors who are savvy and strategic are well-placed to make the most of this unique situation. Here’s how.

The rates ruckus

If you’re one of those types who tunes in with eager anticipation on the first Tuesday of each designated month to hear the Reserve Bank’s decision on the cash rate, you’ve probably been tempted to pull your hair out this year.

We were meant to have seen our first rate cut by now. Initial forecasts from analysts pointed to a continued slowing of inflation, which would be well within the RBA’s target range of two to three per cent by mid-year. On the back of that, the board would start to cut again.

But here we are. No cuts. In fact, there have been some rumblings that an increase isn’t out of the question if economic conditions deteriorate.

I don’t think that’s overly likely.

But it’s true that rates are higher for longer than expected. Some owners have been holding on for dear life, battling to keep on top of mortgage repayments that are thousands of dollars a month higher than they were before the tightening cycle commenced.

For some, they’ve run out of time. They are suffering severe mortgage stress and will be seriously considering selling, if they aren’t forced to first.

We’re running out of months in the year to get a rate cut and the RBA isn’t going to rush, in case it triggers another inflationary increase. So, the chances of a reduction are slim. Most economists now expect the first cut to come in the first half of 2025.

But it doesn’t change the fact that those earlier promises failed to materialise and some are feeling hesitant as a result.

What’s going on?

There’s no denying that markets are more subdued this spring, on the back of that uncertainty about interest rates and the broader economy.

CoreLogic data shows national home prices rose a modest 0.4 per cent in September, the traditionally bumper first month of spring. Sydney saw a reasonable 0.5 per cent lift, although that marked the Harbour City’s lowest growth result since February 2023.

Across the country, the quarterly home price growth rate for the three months to September was one per cent, which was the slowest increase the start of last year. And on a quarterly basis, prices in Melbourne dipped 1.1 per cent.

It’s a mixed bag out there. Either prices are rising very marginally, or they’re falling a bit.

But beyond the price movements, there are still plenty of buyers too. Last weekend, 2510 properties went to auction across Australia’s capital cities, and 67 per cent of them sold. That’s a good result - and it’s on par with this time last year, when things were running hot.

Even Melbourne, which has had a bit of a tumultuous year, had an auction clearance rate nudging 70 per cent, which is up sharply on the 63 per cent figure seen this time in 2023.

The latest realestate.com.au Residential Audience Pulse survey also shows a lift in the number of would-be buyers who think now is a good time to buy, particularly in Victoria (14 per cent higher than last year’s survey) and South Australia (up 28 per cent year-on-year).

And half of potential buyers expect home prices to continue rising over the next six months.

Why you actually shouldn’t care

As the great financial guru Warren Buffet says, smart investors buy when others are hesitant. There’s a lot of wisdom in that perspective.

Those who are in the market to buy a home right now are, in fact, being met by some favourable conditions.

The number of sellers has increased, meaning there’s plenty of choice right now. It hasn’t been that way for a long time, with historically low levels of new supply coming to market meaning an elevated pool of buyers was forced to fight over slim pickings. Prices exploded as a result.

At the same time, while buyers are still out in force, they’re taking longer to act and seem to be a bit spooked. This is good news for those prospective purchasers who are ready to act - subdued competition and more supply means the balance of power has shifted.

It’s more of a buyer’s market, but that’s only useful if you’re prepared to buy.

It’s worth remembering that there are opportunities in every market, during every type of economic eventuality. That’s certainly the case right now.

And on interest rates? Those investors who have a long-term focus, are very clear about their goals, and have a strategic mindset when it comes to building their portfolios, don’t pay much attention to what the RBA is doing.

Rates fluctuate over time. Sometimes they’re very high, sometimes they’re incredibly low, and a lot of the time they’re somewhere in the middle. Those who set their clocks by the RBA board’s movements are bound to miss plenty of great opportunities.

One thing is for certain. Whenever the RBA starts to slash rates again, there will be a surge of homebuyers who are suddenly eager to act. Savvy investors will get in now before the next feeding frenzy begins… and the smartest ones will be using a buyers’ agent to improve their purchasing outcomes. We draw on our networks and experience to ensure clients are overpaying for property, and that the assets they do acquire have the right fundamentals for growth.

If you are thinking about purchasing, but are holding off for a rates cut, my advice is simple… don’t wait, act now. Contact our team and get in while the opportunity presents. Come next year, you’ll be glad you did.

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