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May 2022 housing market update

Michael Yardney and Dr Andrew Wilson discuss Australia's property market.

Video transcript

MICHAEL YARDNEY: And property markets have had a lot to contend with this month-- three holiday long weekends, school holidays, a war on the other side of the world that's creating fear everywhere, an election campaign, rising inflation, and the [? specter ?] of rising interest rates. So how did our property markets cope with all this? That's what I'm going to ask Dr. Andrew Wilson, chief economist of My Housing Market in this week's Property Insider video for Yahoo! Finance. Hi, Andrew.

DR. ANDREW WILSON: Yes. Hello, Michael, and happy May. Of course, we're now into another month. We have the latest data out now on asking price movements over the month. We only focus on the major capitals with our monthly data, asking price data, because our observations are much lower for the smaller capital city markets, and that tends to make those price outcomes a little more volatile. But it was really a pattern that's been obvious for the last few months, Michael, in terms of what's happened with house prices.

We saw Melbourne and Sydney house prices again flat over the month. Really house prices haven't moved that much in Melbourne and Sydney this year. Buyer and seller activity is still holding up, Michael, and confidence levels are still quite positive. But we're not seeing the prices growth that we had last year because that spectacular increase in prices has impacted affordability. So that's reduced by capacity. So buyers and sellers are still active in the market. It's just that buyers don't have the ability to push up prices at those remarkable levels that were recorded last year.

So flat prices, again, in Melbourne and Sydney over April just above the line. However, the other capitals, particularly Adelaide and Brisbane, are continuing to record very strong results, not quite as strong, Michael, as last year. So they've starting to pass the peak of their price increased cycle. Again, affordability is starting to sideline buyers, but they're well and truly performing still strongly and well ahead of Melbourne and Sydney.

And it's interesting, Michael, that Adelaide took over the mantle as the strongest performing capital over April, with prices up by 2.4% over the month. But Brisbane still maintains the lead in terms of annual prices growth, Michael, with asking prices there up by 38.7% over the year. So some very strong results still in Adelaide and Brisbane. They've got some way to run in the current cycle, but of course, we know their median house price is significantly lower than Melbourne and Sydney. And with similar incomes, it means they still have some capacity to push up prices, and that's what we're seeing now. But I do think we'll see a consolidation over the year in terms of price growth levels from all the major capitals. And Perth is just starting to show some more consistent signs of picking up, Michael. And the Perth market is on the rise moderately, but it has been a clear underperformer over recent years.

MICHAEL YARDNEY: Moving forward, while local demand is decreasing, I can imagine in some ways there's going to be increased demand from all those people coming into the country, and particularly for our rental markets, but also investors are likely to head into the markets with rising rents.

DR. ANDREW WILSON: Well, speaking of interest rate, or the potential for interest rate increases, Michael, certainly there are some offsets. I mean, initially I would expect interest rate increases to be quite moderate, but I think once the Reserve Bank has committed itself to a raising cycle, it will continue. It means that it is now actively involved in curtailing inflation. So a one-off isn't going to be really-- we'll see a number of rises. But the offsets to increase mortgage costs which, of course, impacts affordability is still that we have some very positive drivers, firstly to offset increased mortgage costs. We have a full employment economy, Michael. There's no doubt that wages are increasing, although we won't get official notification of that for another fortnight. We have plenty of government handouts at the moment. It is an election campaign after all. So full employment, higher wages, handouts.

Of course, we have very high savings rates at the moment, Michael. So plenty of capacity to absorb increased interest rates. And of course generally, we also understand that half of all households that are owner-occupied don't have a mortgage at all. So they're not going to worry too much about that, and they'll still be getting the handouts and the higher wages and taking advantage of a full employment economy.

So of course it'll be a pretty snappy headline when we do get those higher interest rates, but generally we do have a very strong capacity to offset the costs of higher interest rates, the mortgage costs. And in terms of the housing market, Michael, as you've alluded to, we have plenty of demand drivers still out there. We have the resumption of migration of course, of mass migration, which means higher demand for housing. We've had a number of announcements for new policies or extended policies for first-time buyers. So we certainly would expect to have more first-home buyers in the. And as you said, we have a very tight rental market at the moment. And of course, this is positive news for the increasing numbers of investors that are taking advantage of these very strong returns in investment markets.

MICHAEL YARDNEY: Well, look forward to catching up next week. There will have been the Reserve Bank meeting. We'll hear what they have to say. That will create a lot of interest and speculation.

DR. ANDREW WILSON: Absolutely, Michael. It's going to be a very interesting week.

MICHAEL YARDNEY: It will. Speak to you then. Bye.

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