Over the last year property has been out of favour across Australia whether it be residential, or commercial, not a surprising result of surging interest rates i.e. not long ago you could fix a 4-year home loan at 2%, today the same loan is over 6%. However last weekend saw auction results across major cities improve leading us to question if pessimism has gone too far in Australia’s favourite asset class. The press and market alike have even coined a phrase to describe what is set to unfold over the coming year:
- There is a “fixed rate mortgage cliff” with the RBA telling us up to 880,000 Australians will need to refinance their fixed home loans this year, not fun following 10 consecutive interest rate hikes.
- An average $550k mortgage set when rates were at rock bottom post-COVID will see repayments jump by $890 per month and over $1600 for a million-dollar mortgage.
However, this issue has been prevalent across the press for many months i.e. it’s nothing new and arguably already factored into many prices. History tells us Australia’s obsession with property is a “deep and meaningful relationship” which is likely to need more than interest rates at 6% to derail, we probably just need a period of readjustment and belt-tightening before things will revert back dare we say to normal.
- Markets rarely react aggressively to news that comes on slowly over 6-12 months, the “mortgage cliff” is arguably already old news.
- The recent black swan-style “banking crisis” is already forgotten except by those directly in the firing line e.g. regional US banks.
In March the ASX200 Property Accumulation Index undeformed the ASX200 by -6.6% leading to today’s question of whether enough is enough. At this stage of the cycle, we believe real estate is all about how bad things can get i.e. if a company is trading well below the value of its asserts by definition a significant degree of bad news is already built into the stock. Analysts are understandably largely preferring companies with funding certainty that are well-positioned for a higher rate environment but there can always be opportunities when the crowd jumps from one ship to another.
