February 26, 2024 by Dymphna

Young buyers gearing up, but will it be enough?

Sales should pick up this year… but it won’t close the shortage.

New home buyers are starting to get active in the market.

That was the word from Stockland’s earning call last week. The CEO reckons sales inquiries are booming:

Home buyers are returning to the market as expectations grow that the cycle of interest rate increases has peaked, pushing up new sales inquiries by 20 per cent last month alone, Stockland chief executive Tarun Gupta said.

… If you look back last 12 to 18 months, things have been slowing down really as a result of the high interest rate environment,” he told The Australian Financial Review.

“But we have been saying for some time that as the outlook for interest rates stabilises, we would see demand starting to come back. And that’s what we’ve seen over the course of the last half.”

…“January inquiries, compared to January last year, we were up about 20 per cent, give or take,” he said.

“If you look at around the states, WA is very affordable, and there’s good momentum in that market, south-east Queensland also an affordable market, and we’re seen good momentum there. Sydney is starting to wake up. And Melbourne, Victoria, still subdued.”

Affordability was the biggest challenge and buyers were downsizing to smaller homes on smaller lots, Mr Gupta said.

Yeah, I don’t know if you get to call young people being forced to buy smaller houses on smaller lots ‘downsizing’.

But the point he is making about interest rates is a point I’ve made before.

When there’s uncertainty about where interest rates are headed, it’s hard for young buyers to know what they can afford. And young buyers tend to stretch themselves as far as they feel comfortable… and then a little further.

So I always thought that once the outlook for rates stabilised, we should see demand start to return in a pretty big way. So it looks like that is happening.

And a 20% lift in inquiries does sound like a lot. But you’ve also got to remember that we’re coming off a pretty low base here.

CBA charted out residential building approvals by state the other day, and it’s a pretty bleak picture. It shows approvals falling everywhere, with big falls across the board.

Same story when you look through to the pipeline of building activity. Commencements are in lockstep with approvals and falling sharply.

It’s going to take a lot to turn that around, and I don’t think a 20% lift in inquiries (and how many of them convert into actual sales?) is going to do it.

As I’ve said before, the housing shortage is going to go from big to massive over the next couple of years.

And that’s going to be a massive tail wind for property prices.