A drop in turnover and a lengthening in the average time it takes a property to sell will be the first signs of a slowdown in the residential housing market, Westpac chief economist Dominick Stephens says.
Over the past year, he has argued that house price inflation would continue as long as low mortgage rates did, and warned that interest rates would eventually rise, cooling the market,
“The moment of rising interest rates has been reached, earlier than anticipated. Over the past month, fixed mortgage rates have risen very sharply. Fixed mortgage rates are now sufficiently high that they could take some of the wind to come out of the market’s sails, although rates are not yet high enough to presage an actual reduction in house prices as in 2008.”
He said loan-to-value speed limits, to be introduced at the end of the month, would also dent the ability of first-home buyers to participate in the market. “As we’ve mentioned previously, these restrictions can be expected to slow the housing market over a period of three to six months."
But he said he now expected a gradual cool-off in the housing market.
“The first symptoms of a slowdown would be a small reduction in turnover, a lengthening of the average time to sell, and an increase in the number of properties available on the market. We’d expect those symptoms to emerge around November this year.”
A couple of months after that, prices would weaken. “The nationwide average rate of house price inflation is currently running around 9% per annum. That figure might start dropping towards the mid single-digits over the course of many months.”