As rates rise, fear of missing out shifts from buyers to sellers

Fear of missing out in Melbourne’s property market is shifting from home buyers to sellers, experts say, as vendors rush to do a deal before interest rates rise again.

The shift comes as the market also makes a change from the COVID-19 induced property boom to one in the early stages of a downturn.

On Tuesday, the Reserve Bank of Australia moved the cash rate from a record low 0.1 per cent to 0.35 per cent, the first rise in more than a decade.

Domain chief of research and economics Dr Nicola Powell said with two further interest rate rises expected before the end of the year, the winter auction market may be much busier than usual, as vendors try to get a higher sale price.

“We usually expect lower volumes in the colder weather and the market kicks into gear in spring, but by spring this year there could be one or two interest rate hikes, so people are thinking ‘let’s sell now while conditions are still strong’,” Powell said. “Because they may not get what they want later in the year.”

More vendors were already coming to market to sell. In April, auction numbers were 10 per cent higher than the five-year average in Melbourne, Domain’s latest auction report card showed.

Clearance rates averaged 66.6 per cent over the month. Almost 20 per cent of properties sold before auction as the market swung back in favour of buyers.

This weekend, there are 768 auctions scheduled, the first Saturday since interest rate rises were announced as property watchers kept a close eye on results.

Jellis Craig chief executive Nick Dowling said FOMO had shifted from buyers to sellers over the past few months, as the market changed from red-hot to normal.

“I think the notion that FOMO has switched from buyers to sellers has been happening for a couple of months now as people have been anticipating interest rate rises,” Dowling said. “A number of people have pushed forward quicker than otherwise they would have.”

House price falls in some parts of Melbourne, interest rate rises and the upcoming federal election were now influencing both buyers’ and sellers’ decisions on when to get into the market.

“It has had a huge psychological effect on people,” Dowling said.

While interest rates are rising, they are still quite low and homes, including those in the premium market, are still selling for solid prices, he said.

And while buyers are still buying at auction, they are now being more cautious about making the right offer.

ANZ senior economist Felicity Emmett said buyers could now be suffering from a fear of overpaying rather than a fear of missing out, though it was not true of all capital cities.

“Looking at the Sydney and Melbourne markets, they may be worrying about overpaying going into a rising interest rate market, but other capitals are still running pretty hot,” Emmett said.

Emmett believed more sellers would come to the market, though this number would fall as prices softened.

“I think initially in the phase of the rate rise, vendors will think ‘if I want to sell it’s probably now’,” Emmett said. “The decline in prices has been relatively shallow, at least initially, but if prices do fall more, we know people don’t like to take a loss, or a perceived loss, we could see volumes drop off.”

Mortgage broker Chris Foster Ramsay, of Foster Ramsay Finance, said those who had been “umming and ahhing” about listing their homes for sale were now rushing to the market before further interest rate rises.

“We’ve got agents saying if we’ve got people who want to sell, then sell now,” Foster Ramsay said. “They’re going now.”

If buyers are hoping to bag a property bargain, as prices fall further, they may be left disappointed, he said. Especially as house prices in Melbourne and Sydney are expected to drop moderately.

“Some buyers have their own ideas based on the 1980s stock market crashes,” Foster Ramsay said. “But when you explain prices may only come back by about 7 per cent, then waiting to buy looks a lot less enticing.”