Rapidly rising interest rates, reduced borrowing power and a fear of overpaying are shaking the confidence of home buyers and prompting more house hunters to delay purchases.
Industry figures say they are seeing more buyers bow out of the market amid signs of further price falls while others are pulling out of auctions at the last minute because of changes to their financing.
Sydney auctioneer Jesse Davidson, the director of AuctionWorks, said three consecutive cash rate rises by the Reserve Bank, and a fourth rise expected on Tuesday, had affected buyer borrowing power and sentiment.
This and a fear of overpaying were leading some buyers to ditch plans of purchasing at the last minute.
“The most common feedback is that their finance conditions have changed,” Davidson said. “The banks are calling clients and saying that the approval we gave you is no longer valid, and they have to redo the process again.
“The second thing is the fear of overpaying that has entered the market.”
More buyers were getting cold feet as property prices declined, Davidson said, and some had put their plans on hold, in the hope of securing a better price later this year. Of those pushing ahead, some were wary of buying at auction because they could not make an offer subject to finance.
Property values have dropped 2 per cent nationally over the past quarter, according to CoreLogic figures published on Monday.
Sydney and Melbourne led the declines, with values falling 4.7 and 3.2 per cent, respectively, over the quarter, but price falls have also spread to other cities and regional centres.
Barry Plant executive director Mike McCarthy said Melbourne buyers had become more cautious and were factoring in further interest rate rises.
“If your property is not well marketed, presented and well priced, you may well find the buyers don't turn up on the day,” McCarthy said.
Lower borrowing capacity was also responsible for buyers dropping out of the running, particularly at the lower end of the market, he said.
“Some buyers are trying to get finance organised, and they get to auction and it's just a bit too tight,” McCarthy said. “They might be there, but not necessarily with their hand up.”
Will Unkles, the director of Melbourne mortgage broker 40Forty Finance, said many of his clients had cold feet and about 80 per cent of those with a pre-approved loan would need to see an amazing opportunity to act.
“Unless someone has to buy for a particular reason – say, they've got a growing family, they're moving for work or need to get into a certain school zone, things that are a big life move – [they're] not rushing to buy,” he said.
More buyers were also looking to make offers subject to finance, ruling out bidding at auction.
Auction clearance rates last week were below 60 per cent for the eighth straight week, with CoreLogic recording a preliminary clearance rate of 58.8 per cent. Analysts correlate a 70 per cent auction clearance rate with annual property price growth of about 10 per cent but consider 60 per cent a balanced market.
Buyers at the lower end of the market in Sydney were also more likely to be sitting on the fence, said buyers' agent Peter Kelaher, of PK Property.
Kelaher pointed to a rising number of buyers delaying plans due to uncertainty about high interest rates while others were waiting for an expected increase in the number of homes for sale in spring, which could provide more choice and put downward pressure on prices.
“Buyers in general can be quite flaky in August in any market; they feel that spring is coming up and they will soon have a lot more to choose from,” he said.
Kelaher added that financing delays and such issues were also becoming a factor, and he urged those with pre-approval to check in with their broker or lender before purchasing.
**Source: Sydney Morning Herald: Kate Burke