Back in February 2021, we published a post about the drivers of growth in housing values and transactions nationally and in South Australia. The pandemic and its impact on what was desirable in a home drove a good deal of buy and sell activity in the market. Record low interest rates meant that the price of money was the most affordable it had been in years. Purchasers were saving faster and they were comfortable with borrowing big in a low interest environment. Investors were also turning to property to generate returns given cash their investments were returning very little to them. It seemed everyone was keen to buy and if you managed to go to dinner without the rising price of real estate being raised as a topic, then you were the exception rather than the rule.
Fast forward to August 2022, things have changed a little and you’d be forgiven if you believed we are about to fall off a property cliff. Rising interest rates and falling national price values are providing fodder for a very pessimistic picture. However, it’s always important to look at the facts.
- Sales activity
- What comes next?
Land Services SA reports the number of property transfers registered in SA on a monthly basis. This data is recorded when the transfer is registered so there is some lag between the date a property is sold and its registration date.
Buy and sell activity in South Australia has been strong between the onset of the pandemic in 2020 and now. If we compare the first half of the calendar year (January to June) over the past three years we see there was a very large jump in property transfers 2021 vs 2020 but definite stability in 2022 vs 2021.
SA Property Transfers registered.
- January to June 2020 = 22,708
- January to June 2021 = 31,628
- January to June 2022 = 32,251
The first half of 2022 looked remarkably like 2021 in terms of transaction numbers. There’s no doubt that some of the positive value and transaction movement in South Australia over these past two years has resulted from remote working now being considered the norm for many. People returning to SA from overseas postings, as well as returning or relocating from the relatively expensive eastern seaboard, has been a welcome property transaction bonus from an otherwise unwelcome virus.
While many weddings were put on hold in 2020 and 2021, we saw a sharp increase in the number of couples filing for divorce for the same period. The Federal Circuit and Family Court of Australia received 47,016 divorce applications during the 2021-22 financial year, on top of 49,625 in the previous financial year. So a combined 96,631 couples over the past two financial years compared with 90,318 for the previous two (2018-2019 and 2019-2020). We can reasonably assume that every divorce is likely to result in at least one sale and purchase transaction.
This week Core Logic reported some negative movement in Australian dwelling values (houses and units) with a fall of 1.3% in July. While the Adelaide Region continues to report growth (0.4% in July, 3.6% for the quarter and 24.1% on an annual basis), there’s little doubt that the pressure of increasing rates will, in time, put some downward pressure on prices. The Adelaide Region’s peak quarter of growth to January 2022 was 7.4% so it has now halved for the quarter to July, 2022 (3.6%) yet it does remain positive all the same.
What comes next?
Rising rates will likely see cash investments gain relative attractiveness for investors and that may slow things a little for property. The equities market continues to show volatility amidst global challenges and that too can point toward the attractiveness of cash investment. However in the Adelaide region we’ve seen vacancy rates at record lows and rents have grown by 11.5% for houses and 10.3% for units in the Adelaide region to July 2022. This doesn’t point to an investor sell off and potential value falls as a result.
Even if rates continue to increase through to mid-2023 as predicted, we expect people will try hard to hold onto their homes. Lenders will tell you that a forced sale is a last resort and that they would much prefer to work with borrowers to find alternative solutions, if they are under pressure. If people have done their sums and given themselves the buffer they require to ride out higher interest rates, they’ll get through. Even without buffer, they tend to make changes to their discretionary spend to find the extra money they need to service the increased cost of loans.
We’re about to move into the Spring sale season where we typically see growth in listings and this could mean that the market in Adelaide will retain its buoyancy for the short term. July 2022 saw an 11% drop in the number of transfers registered vs July 2021 so while things are definitely slowing, overall they remain positive for SA so far and agents continue to tell us their biggest challenge is finding stock to sell.
We’ve often commented that the Adelaide real estate market experiences the directional swings and roundabouts of the eastern states but, to a much lesser degree. That means that if we are to experience a correction in values and volume of transactions, history tells us it will not be as pronounced as in the larger markets. In fact it is a very rare occurrence to see South Australian real estate prices in negative territory unlike our eastern neighbours.
Over the long term, property in Australia has proven itself to be a solid investment and in SA in particular, that growth is consistent over time.