Property companies’ earnings suffer as new listings collapse and sellers hold out

February 20, 2023
Posted in News
February 20, 2023 veps

Rising interest rates could prompt wave of forced sales, further hitting house prices.

It’s not just buyers who are disappearing from Australia’s rapidly cooling housing market. Many prospective sellers are also holding back, unwilling to accept the falling prices now sweeping the market.

The standoff spells bad news for property companies that rely on transactions to make money. It also raises the prospect that steeper price falls could lie ahead, should rising mortgage rates prompt a wave of forced sales.

On Monday, real estate company McGrath reported an 83% drop in underlying net profit to $1.12m for the six months to December after a weaker-than-usual spring season, marked by reduced sales volumes.

“As expected, the market is taking a much-needed breather after rapid growth over the last three years,” said its chief executive, John McGrath, who expects property prices to start rising again in 2024.

“While the economic climate and impact of further interest rate rises is difficult to predict, we think we are either at or approaching the bottom of this property cycle.”

McGrath generates the bulk of its revenue from Sydney, followed by contributions from Melbourne and Brisbane, which are all locations where new listings have fallen significantly.

Last week, online property portal Domain cited a collapse in new home listings for a near 40% drop in net profit.

The number of new listings are almost one-fifth lower than the same period last year, according to property data company CoreLogic, which is well below the five-year average.

“We are seeing homeowners just waiting on the sidelines and that’s also accompanied by less buying activity,” the CoreLogic executive research director, Tim Lawless, said.

The pullback in listings started last year amid a series of cash rate increases by the Reserve Bank that led to higher mortgage rates. After a sharp run-up in prices in recent years, national home values have slid by 7.2% in the past 12 months, led by a 13.8% fall in Sydney.

“We are still seeing a relatively small selection set for prospective buyers, which is probably one of the factors that is helping to keep a lid on price declines because there aren’t a lot of properties to choose from,” said Lawless.

“We may get to the stage where those people who are considering selling just can’t wait any longer, so it really depends on how long the weakness in the market lasts.”

After nine consecutive cash rate hikes, the official rate has risen to 3.35%, its highest level in just over a decade. NAB and ANZ are among the financial institutions expecting three more 25 basis point increases, raising the rate to 4.1%.

The Reserve Bank governor, Philip Lowe, told a parliamentary committee last week rates would probably need to keep rising to combat inflation, which was “way too high” and needed to come down.

Mortgage holders are also facing the added strain of rising costs for electricity and food.

Prospective buyers would typically wait for interest rates to stabilise or fall before entering the market en masse.

The standoff between buyers and sellers is evident in other countries where mortgage rates are rising to combat high inflation. In the UK, the volume of fresh home listings is down, as are property prices.

source: theguardian