This is still the number one puzzle in the property market.
Ok, I’m going to confess. I’m not sure I understand this market.
We got a surprise rate hike out of the RBA. We got a surprise tilt hawkish, with the RBA signalling that at least one more rate hike is probably needed.
And what did the property market do?
Shrugged it off. Said, ‘whatever, I don’t care.’
This is not what theory tells us should be happening.
Given how deep we are in the rate hiking cycle, buyers should be pulling back and prices should be falling. But nup. Auctions are going off!
The national auction clearance rate held above 70 per cent for the seventh straight week and average bidder numbers surged as the housing market appeared to take the latest Reserve Bank rate rise in its stride.
Despite the number of homes taken to auction almost doubling to 1951 – the most in 11 weeks, according to CoreLogic – 72.5 per cent of homes were reported as sold based on preliminary data, almost unchanged from last week’s 72.4 per cent, when there were just 1040 homes taken to auction due to the King’s Birthday long weekend.
Highlighting the apparent strength of the market, Ray White, the country’s biggest real estate agency, reported a 50 per cent spike in the average number of bidders at its auctions, up to four and a half from three, as it recorded a higher 72 per cent clearance rate across 347 auctions.
“Looking ahead we anticipate more stock reaching the market,” Ray White NSW chief auctioneer Alex Pattaro said.
“The buyer pool is very strong and deep. It is the strongest it has been in over 12 months, which should encourage sellers to come to the market.”
Ok. That last statement makes zero sense, Alex.
I mean, yes, the buyer pool is strong and deep. You definitely get a sense of that.
But that won’t encourage sellers to sell.
And with prices continuing to march north, potential sellers are likely to sit on their hands a little longer and book a bit more capital gain.
I mean, think about it. Even if mortgage rates are rising and that’s starting to hurt you a little, it’s not massive in the scheme of things.
I mean what, the extra rate hikes are going to cost you, what, $5-10 grand over six months?
With prices rising quickly, you could pick up an extra $100-200K just by waiting for another six months.
So sure, it’s great that buyers are hungry.
But rising prices actually discourages many sellers to sell.
And then you have hungry buyers facing a market with even fewer sellers.
And the market gets even more competitive.
And prices go even higher.
And so perhaps this is the answer to our puzzle.
As long as people have jobs and can afford to hold tight with higher rates for a few months, they’ll happily wait a few more months to pick up the extra capital gain.
And people do have jobs. And they have savings buffers in place.
And perhaps this is why rates haven’t dented property prices in the way the theory tells us they should have.
I think I just answered my own question.
JG.