Agents and auctioneers say that selling is becoming tougher than last year, as buyers become more discerning and fear of missing out changes to fear of overpaying.
Added building costs are also deterring bidders who once loved to find a fixer-upper to make their own.
Westpac senior economist Matthew Hassan said the first official interest rate rise by the Reserve Bank of Australia in May was a shock to the market.
“It’s a very clear jolt to the market,” Hassan said. “It’s really due to the rate move and the wider expectations that the cost of living is rising and there are more rate rises to come.”
Hassan said clearance rates were falling while there had also been a sharp rise in withdrawn auctions in May. In Sydney, the number of withdrawn auctions doubled on April’s figures, Domain data shows.
“From a seller’s perspective, they are facing a quandary: do they take the hit and sell, or wait possibly for the next two to three years for things to improve?” Hassan said.
AMP Capital chief economist Shane Oliver said home sellers and buyers could expect clearance rates to bottom out about 40 per cent over the next 12 to 18 months, similar to previous market downturns.
With the Reserve Bank meeting on Tuesday, and interest rates likely to rise again, buyers’ potential borrowing power could take a further hit.
“The rise in interest rates is having an impact on the market a lot earlier than in the past,” Oliver said. “That’s because around 45 per cent of new lending is through fixed-rate loans, where interest rates rose before the RBA’s official hike in May.”
Oliver said clearance rates would fall further, but not as far as they had during pandemic lockdowns, where some had fallen as low as the 20 per cent range.
“I think we will go down to the low forties and spend time bouncing around the bottom until recovery starts,” he said. “We’ve still got a bit more damage to come.”
The Money with Jess newsletter helps you budget, earn, invest and enjoy your money. Sign up to get it every Sunday.