Buyers vs sellers: who will win 2023’s real estate battle?

“If you’re waiting for prices to fall further, your borrowing power will be reduced too, as rate increases. If you’re waiting for interest rates to fall, you can borrow more money, but there’s more competition, and you end up paying more.”

Since peaking in April, home values nationwide have slumped by 7 per cent, slashing the total value of Australia’s residential real estate by $641.3 billion to $9.4 trillion, according to CoreLogic.

In the 12 months to the end of November, dwelling values dipped by 3.2 per cent nationwide, marking the largest annual decline in more than three years.

Shane Oliver, AMP Capital chief economist, said the Reserve Bank would likely pause after increasing interest rates for the ninth time in February and could potentially start cutting rates by the end of the year.

“There is a good chance that by the time the Reserve Bank meets again in February, the economy would have slowed and this would enable them to go on pause from there,” Dr Oliver said.

“We’re getting close to the top of the rate cycle, and I think we’re probably about halfway through the housing market downturn.

“So we’re expecting home prices to fall further as rate rises continue to impact, resulting in a peak to trough drop of 15 per cent to 20 per cent. But prices are expected to bottom around the September quarter, ahead of gains late in the year as the RBA moves toward rate cuts.”

Some experts say the market will continue to favour buyers in the next 12 months amid weaker prices, despite lower borrowing power and scant listings.

 

Forced selling

The large chunk of fixed rate mortgages rolling into higher interest rates later in the year could also spark some forced selling and offer buying opportunities.

Eliza Owen, CoreLogic head of research, said 2023 would benefit buyers who could afford to borrow as interest rates peak.

“There are certainly challenges at buying in any point of the cycle, but this year will see less buyer competition, lower purchase prices, and potentially some more motivated sellers off the back of rising interest rates, and adjusting expectations around lower sale prices,” Ms Owen said.

Jack Henderson, Sydney-based buyer’s agent and founder of Henderson Advocacy said buyers who were not constrained by limited borrowing capacity would win the real estate battle in the next 12 months.

“Those who have the largest amounts of buying capacity will be the real winners because they can take their time and also wield significant negotiating power,” Mr Henderson said.

“But buyers who wait too long might miss the opportunity because the market could also turn abruptly into a sellers’ market, like it did during the pandemic.”

Shannan Whitney, director of Sydney-based real estate agency BresicWhitney, said while there was still demand for reasonably priced homes, vendors with unrealistic expectations would lose out.

“I think there will be more pressure on vendors to meet the market than buyers,” Mr Whitney said.

“If pricing is not right, then transactions don’t happen. Buyers won’t stretch their budgets to pay more. So to me, if there was a winner, I still feel that largely, the power is on the buy side.”

 

A fighting chance

But vendors also have a fighting chance as new listings dry out and the return of migrants adds to demand, according to industry insiders.

CoreLogic data shows new listings have dropped by 26.3 per cent in the four weeks ended December 4 from a year ago, and were down by 12 per cent compared to the five-year average.

“I think there’s still going to be a lack of stock after the new year and buyers who weren’t able to secure something before the holidays will be returning, so you get the new influx of buyers as well,” said Bronwen Lipscombe, a selling agent with McGrath.

“So assuming that the lack of stock continues, vendors are actually going to be in a much better position because of the increased competition.”

Cate Bakos, buyer’s agent and founder of Cate Bakos Property, said pent-up demand from buyers waiting in the wings, combined with the increased migration would give vendors the upper hand.

“If we didn’t have the migration flood gates opening, I’d have to say that buyers grappling with lower borrowing power and lower listings would be the winners,” Ms Bakos said.

“However, I feel that vendors will be the winners. With an increase in new arrivals, a slower rate of new builds and pressure on building materials, established home vendors will be the beneficiaries as the supply and demand equation switches back to favouring vendors.

“We know of many buyers who can buy but have chosen to sit it out and try to time the market. When the RBA eases up with cash rate increases, we will see a flood of these buyers back into the market. Combined with lower stock levels, this will be a nice cocktail for vendors who have previously been facing softer demand.”