Will interest rate stability lure more property investors?

Interest rates have predictably remained on hold even though inflation is easing, setting up the real estate market for a steady run to end the year.

Steady has been the norm for the market in recent times. Transaction activity has been solid if subdued, auction volumes are down slightly on what they were 12 months ago, listing numbers are relatively flat, and clearance rates have softened slightly but remain encouraging for vendors.

In many cases, agents report that vendor expectations require adjustment. Many want more for their homes than they’re worth in this market, which is the same as saying more than buyers are willing to pay.

On the buyer front, first home buyers remain very cautious, the number of upgraders is significant but not sizable, while downsizers are among the most competitive.

Against this background, and in an environment of rental reforms, investors remain quiet.

So, will there be a catalyst for investors to return in greater numbers in 2025?

They will need to contend with the anti-landlord reforms recently introduced in NSW, including the end of fixed term leases, ‘no grounds eviction’ and the inability to say no to a pet.

They will need to be satisfied that residential property is the most attractive investment given their circumstances, a case made more difficult by these latest reforms.

For many, it will probably also take an interest rate cut to spur them into action, and while most economists consider the next rate movement will be down, nothing is set in stone.

On the plus side, the steady market points to stable prices in the near-term. And as the year draws to a close, it’s worth reminding ourselves of a few market truths.

Firstly, prices will always periodically level out. This time around, it’s a consequence of sustained higher interest rates and the high cost of living, which continues to bite.

The ability of a buyer to service debt correlates directly to their disposable income. As repayment obligations have remained high, and the cost of living has increased, disposable income has decreased. Thus, the resources for buyers to compete for the available properties are diminished.

Second, the price of property is not set by vendors or agents. It is set by buyers in competition. An auction is the most visual demonstration of this point.

The ability of buyers to compete therefore has a direct impact on prices, and if this is diminished, prices will naturally soften.

And yet, with all the current economic influences theoretically pointing towards a correction, CoreLogic says Sydney house values in October fell just 0.1 per cent.

The decline was driven by the top end; more affordable markets, where many investors focus their interest, continue to show mild growth. The supply-demand imbalance is the truth that continues to weigh most heavily on market performance.

Finally, it’s worth remembering that the market is actually thousands of individual markets. They accommodate the broader economic influences in their own way. Just as individual investors will need to do.