Video Transcript:
Hello and welcome to our monthly property market update.
I’m Chris Paton, Chief Investment Officer here at La Trobe Financial.
Residential property continues to defy the worst bare predictions. It is falling from its peak. Yes, and you’ll see pockets of weakness across the country, but as a market, residential property continues to be stubbornly resilient. The residential market first showed signs of peaking from November, 2021, certainly in the key capital cities of Melbourne and Sydney jump forward to October, 2022, and prices are down nationally by just 0.9% over the past 12 months. Over that period combined capital cities are down just 3.1%. Drilling down into our largest market sees Melbourne and Sydney down 5.6% and 8.6% respectively in the 12 months to October. Now we are not starry-eyed enough to suggest that we are not in a correction. We are very much in that space right now across the country.
Property prices surge post COVID-19 and this froth and fervour is now abating. Interest rates are increasing, which diminishes purchasing power, but full employment and rising wages means that there is a wide market of ready purchases. In short, our initial view of a 15% fall nationally, plus or minus from peak to trough still appears about right. Consider the old standard of supply and demand in November, 2022. There is less stock on the market than in any of the previous four Novembers. There are no signs of panic selling with supply. Remaining low demand shown by the volume of transactions in the market is moderating, but still remains above the previous five-year average. So people are still active in the market. They’re just buying property for less than they would’ve had to a year ago. A lot of commentary on systemic risk centers on the cohort of expiring fixed rate loans.
In particular loans made at record low rates set to refinance into a higher rate market. While La Trobe Financial does not have exposure to this borrowing cohort, we will continue to monitor the impact upon the credit market. But as a headline, remember that these borrowers have had their capacity to pay assessed in the same way as their variable rate counterparts through consecutive rate rises. Variable rate borrowers have met the obligations of higher interest rates. Fixed rate borrowers have the relative luxury of being able to prepare for the step up and to date have successfully done so. Right now, La Trobe Financial borrower arrears are tracking at or near record low levels, and this is consistent right across the sector. At the end of the September quarter Fitch ratings released data, noting that its monitoring of system arrears sat at its lowest ever level. What is clear is that we are remarkably well-placed to meet the challenges that lay ahead.
We have a fully employed workforce up to date on their loan repayments six months after the first interest rate rise, a year after the first jump in inflation and two years after a global pandemic event. This is a stronger position we could have hoped to see.
Thank you for watching. I hope you have found these insights useful. If you have any queries, please contact our asset management team on 1800 818 818.