Rising mortgage rates will put a brake on the real estate market, but it was already on the verge of a turning point, a new analysis from Corelogic shows.

House prices continued to rise, but the real estate research firm's market update for the second quarter showed that price growth had slowed in recent months.

Price growth declined from 3.1 percent per month in April to 2.2 percent in May and then 1.8 percent in June.

Corelogic chief economist Kelvin Davidson said he was seeing signs that the market is cooling off after a hot start into 2021.

Sales activity has slowed, but the lack of offers plays a role.

Abigail Dougherty / stuff

Sales activity has slowed, but the lack of offers plays a role.

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Sales volumes have declined somewhat and are now around the 2019 level, with 2020 not being a fair comparison, he said.

"Our data on bank-commissioned valuations, which is a leading indicator of borrowers applying for credit, suggests that demand has subsided and that this may be translating into actual sales.

"That shouldn't come as a surprise, especially since a number of deals would have been brought forward during the year to overcome the stricter loan-to-value requirements."

Corelogic had expected the market to slow due to affordability pressures, the reinstatement of LVRs in March, and government tax changes for investors.

Davidson said supply is not just about demand, and the ongoing lack of supply has played a huge role in reducing sales activity.

But last week's rise in mortgage rates would be another factor in the real estate landscape, he said.

"For those still trying to buy their first home, rate hikes will raise the bar to get started.

"And those who have been in the market since 2014, when OCR's most recent surge, have seen only low interest rates. Hence, the increases will come as a shock to many who recently bought with a large mortgage. "

An increase in the official cash interest rate, which some economists voted for later this year, would have a dampening effect on the market.

Davidson said these factors reinforce his view that selling activity and price growth were near or at their peak, and that both would likely ease in the coming months.

CoreLogic's chief economist, Kelvin Davidson, doesn't expect widespread price declines, just a slower market.

Delivered

CoreLogic's chief economist, Kelvin Davidson, doesn't expect widespread price declines, just a slower market.

Even if the government's new tax policy hadn't had a significant impact yet, it would happen as the ability to claim interest deductions for current landlords would expire, he said.

"Once you see significantly slower price growth, the inevitable question is where will this end and where prices actually start to fall?

"But we don't expect widespread price declines because unemployment is low and there are no signs of a GFC-style credit crunch. We assume that growth at the national level will simply slow down, although there could be price declines in some areas. "

The CoreLogic report also showed that the market share of purchases for mortgage investors had decreased significantly.

Their share of purchases fell from 29 percent in the first quarter of the year to 25 percent in the second quarter, the lowest proportion in around a year.

The share of first home buyers in house purchases has risen.

Stock photo / Western Leader

The share of first home buyers in house purchases has risen.

The number of first home buyers on the market has also risen, their share of purchases rising from 21 percent at the beginning of the year to 24 percent in the second quarter.

Davidson said the government's new build incentives for investors may not be ideal from a first home buyer's perspective, as they have traditionally been very interested in new builds.

"As the market cools in the months ahead and into 2022, we should see a return to 'normal' sales activity and price growth.

"And the burdens on potential first-time home buyers in trying to save enough to keep up with the market with their investment will not be as great."

source https://seapointrealtors.com/2021/07/22/hot-property-market-at-turning-point-corelogic-says/

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