Is this just the start of bigger price falls for Brisbane?
Brisbane's meteoric price rises are falling back to earth, so is this the start of a major tumble or just a minor correction?
For the first time in more than two years, negative growth has been recorded in both the house and unit market across Greater Brisbane.
The latest CoreLogic Hedonic Home Value Index findings have confirmed that Brisbane house prices peaked in June 2022 and unit prices in July 2022.
Are these price adjustments the start of large falls in the months ahead, or is this simply an adjustment while buyers wait for more confidence to return to the market?
The weaker results, especially in the house market in Brisbane, accelerated during August compared to the July results.
Being mindful that this data reflects settled sales, what this tells us is that throughout July we saw a large change in buyer and seller behaviour.
This was at a time when consumer sentiment reached new lows that were comparable to other major shocks, such as the Global Financial Crisis and the onset of the Covid-19 pandemic.
A large number of buyers were fearful and taking a stance and sat on the sidelines rather than participate in active bidding on properties.
Pre-approved buyers were having to determine if their borrowing capacity had been eroded due to the rate rises that were occurring each month, which meant some buyers were simply unsure of what they could lend so were not in a position to buy.
During times of change and uncertainty, such as the current interest rate cycle, buyers tend to take a wait and see approach. Sellers also often sit out of the market waiting to see signs of improved confidence, unless there is a real motivation to sell.
There have been great buying opportunities recently, whereby sellers have been motivated and therefore willing to meet the market.
Some of these vendors had already bought elsewhere, so they needed to sell. Others were deceased estates and “quiet” sales, which included divorcees. When there is a motivated vendor, they are usually prepared to meet the market. When buyers are nervous, they tend to offer less and because of this there have been opportunities to buy quality properties for a good price.
However, we have also seen many properties not sell throughout Brisbane.
The gap between buyers and sellers does not seem to converge, and when there is no real motivation to sell, the days on market simply trends higher. These properties do not become part of the data that records property price trends.
Flight to quality
Demand for properties that have impacts such as flood or overland flow, or properties on main roads (for example) have definitely softened.
Sales agents are finding these properties a little more difficult to sell as buyers have become pickier in relation to what they want to buy, or they are pricing in a value deduction for the impacts.
During 2021, these types of properties were just as popular as everything else – there was a buyer for everything but this is no longer the case.
Brisbane dwelling values declined 1.8 per cent throughout August, according to the CoreLogic Hedonic Home Value Index. The median value for all dwellings across Greater Brisbane is now $762,284, which is $19,556 less than a month ago.
The rate of decline was larger in the house sector, with falls in the median value of 2.1 per cent throughout August. The median value for a house in all of Greater Brisbane is now $864,149, which is $20,187 less than last month.
Of course, this does not mean a house purchased four weeks ago is suddenly worth 2.1 per cent less than what was paid.
Every property has its own level of demand and therefore reaches its own level of value based on previous comparable sales and also the quality of what buyers are wanting.
Quality houses that are well located are still highly sought after and achieving strong prices. There appears to be a shift towards quality once more and demand is still strong for high quality homes.
Units in Brisbane have fallen very slightly over the month with a reduction of 0.2 per cent in the median value, which now sits at $501,396. This is $3,124 lower than last month.
Rents on the rise
Rental rates remain strong in Brisbane due to the low number of rental properties available, evidenced by vacancy rates that continue to hover at record lows. In July there were just 2,474 properties for rent throughout Brisbane, with a vacancy rate of just 0.7 per cent.
With very limited supply of rental accommodation, it is not a surprise that rents are still rising in Brisbane.
The annual change in housing rents increased 14.1 per cent, whereas for units the annual change was 10.7 per cent.
Brisbane still leads the capital cities throughout Australia for the largest growth in rents over the last 12 months.
While this provides some relief for landlords dealing with rising interest rates, it is not good news for tenants.
There are so many instances where properties are still receiving rental applications prior to an inspection taking place, and in most cases where a rental property is appropriately priced, there are multiple applications received from tenants.
Due to the slowdown in property prices and the continued growth in rents, gross investment yields continue to recover.
The median gross yield for Brisbane houses has increased from 3.4 per cent last month to 3.6 per cent now and for units the median gross rental yield has increased from 4.7 per cent last month to 4.8 per cent at the end of August.
These higher yields are starting to offset the increasing holding costs for investors with Brisbane assets.
While interest rates continue to rise, eroding the borrowing capacity of property buyers, and inflation continues to put pressure on household expenses, it is reasonable to expect the demand of property to remain suppressed.
It is also reasonable to expect that once inflation is under control, interest rates will find their new point and buyers will regain their confidence.
At that time we expect the buyers who have been sitting on the sidelines will re-enter the market and the depth of buyers tips Brisbane back into a sellers’ market.