Sydney’s Mortgage Loan Portfolio Diversification: Spreading Profit Risks – Key takeaways – Property prices in the capital so far in March are on track for a gain of around 0.6 per cent, led by Sydney, based on CoreLogic data. – The main positives for the residential property market are improving demographic demand, tight supply and tight rental markets. – Against this, the full impact of interest rate hikes is yet to be seen, with housing affordability remaining on the decline. – As such, while there is a chance that prices will bottom out, our base case remains for a 15-20% decline in prices from top to bottom, with the current pullback likely to be short-lived.
From April’s peak to last month’s lowest national average house prices fell 9.1 per cent, the biggest decline in CoreLogic records since 1980. Capital city average prices fell 9, 7%, which is the second largest decrease, after 10.2% in the autumn of 2017-19. However, average price declines have slowed to an acceleration and CoreLogic data shows this has translated into price gains in several cities so far in March, with Sydney prices rising 1.1% at a monthly and average prices in five capital cities rising by 0.6%. See the following chart. If house prices were to fall, that would leave them below our expectations for a top-down decline of 15-20%. So are property prices doing it again? – falls less than expected and then rises more than expected. This note looks at the positives and negatives of the outlook for the residential real estate market.
Sydney’s Mortgage Loan Portfolio Diversification: Spreading Profit Risks
So perhaps the combination of bargain hunters motivated by a track record showing prices rebounding quickly, low shares, supported by expectations of strong demand as immigrants return, is driving a price rebound. More fundamentally, the continued decline in supply provides a sort of floor under prices.
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The combination will likely tighten demand and cause a potential increase in supply as some financially stressed homeowners sell.
Our base case remains that the current uptick in home prices will be short-lived as demand from bargain hunters runs its course, the impact of higher interest rates reasserts itself and rates rise in response to distressed sales. So we continue to see median home prices drop 15-20% top to bottom by the end of this year, which we’re halfway through, and we don’t see a sustained recovery until next year.
While Australia’s fundamental housing shortage is now reasserting itself – with underlying demand growing on the back of returning immigration and insufficient supply, as evident in very low rental vacancy rates – it has been the move at ever-lower interest rates over many years in the pandemic that allowed the supply shortage to lead to an ever-increasing house price-to-income ratio in recent decades. Now higher interest rates make this more difficult, suggesting that the supply shortfall should occur at a lower price-to-earnings ratio.
However, the current environment is very difficult to read, so there is a chance that prices have fallen, especially if rates have peaked and the Australian economy has a soft landing. But even if that is the case, in the absence of much lower interest rates, the recovery is likely to be constrained, as the buyer’s ability to pay for homes will be constrained.
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Weekly Market Update 09-22-2023 September 22, 2023 | Blog stocks remain under pressure from rising bond yields; central banks at or near peak – but many signal higher for longer; US Government Shutdown Risk; measures to increase housing supply in Australia; Australian inflation to rise; and other. Read more
Oliver’s Outlook – Immigration and Housing 20 September 2023 | Dr Shane Oliver’s blog discusses the key drivers of low housing affordability in Australia and in particular the role played by high levels of immigration. Read more
Weekly Market Update 09-15-2023 September 15, 2023 | Blog There was a ‘dovish rate hike’ from the ECB; Australia’s population growth has added to the housing shortage; the increase in the price of gasoline another impact on consumers; and other. Read more
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The outlook for the real estate sector for 2024 has improved due to increased immigration and reduced supply driving demand despite softer economic conditions and rising interest rates.
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Submit your details at the appropriate time and a member of the Investor Relations team will contact you. When investing in real estate, it can be a good idea to diversify your portfolio. Diversification helps spread the risk of any investment and keep your portfolio stable regardless of what happens to any investment. Investing internationally is a way to diversify your portfolio because there are different types of property available globally and different types of savings that changes in global markets can affect.
Investing in international real estate is a great way to diversify your portfolio. Diversification reduces the risk of losing money in a single investment and can help you grow your wealth over time.
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How can you invest in international real estate without actually traveling abroad? Fortunately, several financial products allow investors to gain exposure to foreign markets without leaving their home country.
REITs (real estate investment trusts) are companies that own rental properties or mortgages on those properties and then sell the ownership portions of those assets in the public markets. REITs give investors exposure to different types of properties around the world, from apartment buildings in New York down south to Mexico City.
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