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Opinion: With rate expectations reversing and serviceability stretched, a veteran agent warns Australia could soon see a flood of properties hit the market, reshaping supply, demand and prices.
The narrative has changed very quickly from a few months ago where pundits predicted “rates would be coming down in 2026” to them now going up.
On 2 December, I had an article published in Real Estate Business where I explained that after the recent inflation figures, there was a strong possibly that rates may go up – many thought I was delusional. I even had a client who works for the government tell me this certainly wasn’t on their agenda, and I was mistaken. Clearly not.
In my approximately 25 years in real estate, I have never seen any other strategy adopted to settle inflation apart from increasing rates.
Inflation occurs when the cost of commodities increases. Commodities are essentially the building blocks of global economies (livestock, wheat, oil, timber).
When the costs of commodities increases (cost of living), the only strategy that I’m aware of to decrease the cost of commodities is to increase interest rates so there is fewer surplus funds to spend and as a byproduct, the cost of these raw materials reduces.
The issue we potentially face now is the landscape and the narrative has changed very quickly.
Late last year there were many people hanging on to the hope that rates were coming down – serviceability is a real problem after the previous 13 consecutive rate rises.
Now that rates have increased and the narrative has changed, I feel there is the real potential that over the next 3–12 months we will see a flood of properties come onto the market.
If this happens, the entire “supply and demand” chain shifts whereby you have more properties on the market and more buyers sitting on the fence, with the only way for a property to look more attractive than the next is to reduce prices.
This current predicament will not be isolated to a particular “class or demographic”, in my opinion, but felt across all sectors – from markets where the average selling price is $5 million to markets where the average selling price is $500,000, reason being there are many out there that are currently highly leveraged and certainly more so after the previous 13 rate rises.
My prediction over the next 12 months is that prices will come back – how far down the rabbit hole is anyone’s guess – and will also be determined based on inflation containment and further potential rate increases.
One thing to always bear in mind is that real estate is relative – you sell in a good market/you buy in a good market, and when you sell bad buy bad.
With this being said, my advice would be that if you are thinking of selling over the next 12 months, I would be doing this sooner than later and possibly look at selling on a longer settlement if need be, which will give you a better chance of selling in more isolation as opposed to heavy competition, which we may very well see as people now start to get their houses ready for market based on this now rate increase and serviceability situation.
This may also give you an opportunity to sell in a somewhat stable environment and then buy when you have plenty to choose from, combined with a landscape whereby properties are competing with each other to sell.
I can’t read the future but this is where I currently see the lay of the land.
Adam Flynn is the chief executive officer and founder of Flynn Estate Agents.
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