Issue 16 | Thursday 10 August 2023 | Economic Indicators, Interest Rates, and Real Estate Trends
Hi Andrew Bell here with a market update and insight for you. As we find ourselves in the midst of August, it’s hard to believe how quickly the year is progressing. The economy is displaying signs of a substantial slowdown, which might present some challenges in the coming months, but we remain hopeful to avoid a recession. Across various industries, businesses are reporting a notable change in consumer spending patterns. Recent research by Roy Morgans reveals that approximately 1.43 million Australians, equivalent to 28.7% of all mortgage holders in the country, are at risk of mortgage stress, making it no surprise that financial concerns are widespread.
On a relatively positive note, homeowners have managed to offset higher interest rates with modest gains in property values, meaning that the majority are affected more from a cash flow perspective rather than a reduction in net wealth. However, this hasn’t spared many from facing the challenge of paying their monthly bills, as the increased interest rates have drained their savings and put them in a negative cash position week after week. The big question that lingers is how long interest rates will remain at these elevated levels. The rising number of property owners seeking appraisals to sell due to financial stress is an indicator of the current situation. An influx of properties in the market might shift the balance between buyers and sellers, ultimately influencing property prices.
One interesting factor in the market has been the impact of downsizers. Many downsizers have been selling their properties in cities like Sydney and Melbourne for significant sums and buying homes on the Gold Coast for cash as they retire and prefer to avoid a mortgage. This trend has contributed to a stronger foundation in the real estate market since a considerable percentage of people in these suburbs own their homes outright and are not affected by higher interest rates or mortgage stress.
Despite two consecutive months of interest rates being on hold, it’s uncertain if this indicates the peak of the interest rate cycle. Inflation levels remain a key driver of interest rates, and while they have decreased due to specific components, many other factors are still holding steady. The Reserve Bank will likely wait for a significant decline in inflation before halting further interest rate rises. Currently, the best-case scenario is that interest rates will remain on hold without further increases, but the longer-term concern is how long interest rates will stay at their current levels, as this is what’s causing financial strain for many individuals.
Consumer confidence has shown a flighty nature, with even minor changes in interest rate expectations influencing sentiment. The recent ANZ-Roy Morgan consumer confidence survey, conducted before the announcement of interest rates being on hold, showed a 3.2-point increase to 78.4, the largest two-week jump since April 2020. Although optimism was partly fueled by declining inflation, the volatility of consumer confidence remains evident, subject to various factors on any given day.
Given the current economic conditions, it’s understandable that an increasing number of sellers are concerned about real estate values. Many believe that prolonged high-interest rates may lead to a substantial increase in forced property sales, potentially exerting downward pressure on prices. As a result, the market is currently witnessing remarkable success rates in auctions, with experienced companies achieving results similar to those during the real estate boom, boasting over a 90% success rate within an agency period and attracting an average of 4.5 bidders per auction.
At Ray White Surfers Paradise Group, renowned for our benchmark auctions on the Gold Coast, we are excited to announce our annual Spring Carnival Auction Event. This event capitalises on the strong Spring season and provides additional exposure to properties selling by private treaty, an advantage that other real estate companies cannot match. If you’re considering selling your property as an insurance policy against any potential drop in values, please find our contact details on the screen to obtain more information about the Spring Auction Event.
Finally, we would like to extend an invitation to our amazing Ray White Surfers Paradise Group Muscular Dystrophy Charity Ball, taking place in just three weeks. As the longest-running charity ball on the Gold Coast, this iconic event promises a fabulous French theme, incredible entertainment, and a mesmerising Moulin Rouge performance. We urge you not to miss this unforgettable night, and whether you come alone, with a partner, a couple of friends, or a whole table, please contact our Event Coordinator to make a booking. While enjoying the festivities, you’ll also contribute to raising funds for children afflicted with the dreaded disease Muscular Dystrophy.
That concludes this fortnight’s market report. We look forward to being back with you in two weeks’ time.
Andrew Bell, OAM
Chief Executive Officer
The Ray White Surfers Paradise Group