It’s tempting to believe the end of a fall means the start of a rise. But housing markets can chop sideways for a long time.
The housing market looks like it is about to turn.
Three main signals are present:
- Auction clearance rates are rising. Melbourne is the nation’s auction capital, and preliminary clearance rates over the weekend were a middling sort of 73%. That’s by no means a boom but is well above a slump. And the trajectory is upwards.
- Interest rate rises are over — or all but. Markets pricing in a small chance of a rate rise in the next two months are pricing in a much higher chance of a cut in the six months thereafter. It looks like new mortgages won’t get much more expensive than they are now.
- Migrants are pouring into the country at a rate comparable with the fastest pre-COVID years. Meanwhile rents are frothing up, pushing consumer price inflation to uncomfortable levels. As property prices fall and rents rise, property yields go up.
A few years ago, investors would have been lucky to make 3% yield on an inner-city rental in Sydney or Melbourne. Now it’s approaching 5%. If they own that investment property outright, that’s a credible return. If they have to borrow to buy it, they can take the tax advantages of negative gearing.
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