Real estate veteran predicts bottom is nearing for house price falls

Real estate veteran John McGrath says the housing price slump is nearing its end and a combination of natural pent-up demand and the return of cashed-up expats will boost the property market.

“While the economic climate and impact of further interest rate rises is difficult to predict, we think we are either at, or approaching, the bottom of this property cycle,” he said.

“Our view is the next stage of the market will be a consolidation, featuring a plateauing of prices, followed by further upward growth in property values in 2024.”

He said the housing market was showing signs – judged by weekend auctions – that buyers believe interest rates are near their peak, and this has sent them back into buying properties.

According to Domain, auction clearances in Sydney over the weekend were 75 per cent in Sydney and 63 per cent in Melbourne.

“If you went to any of our auctions or opens on the weekend you would have seen there is no problem with this market,” said McGrath.

‘If you went to any of our auctions or opens on the weekend you would have seen there is no problem with this market.’

John McGrath, McGrath chief executive

“There is a shortage of stock … which means people feel we are getting closer to the top of the interest rate cycle, and they are factoring in one or two more rises, they are doing their sums on that and buying because they are getting a discount to what they would have paid 18 months ago.”

The ASX-listed agency McGrath has a market value of $60.7 million with 115 offices, mostly under franchise, across the country. McGrath founded the business in 1988 from a small office in Paddington in Sydney’s eastern suburbs where he handled so many home sales he was dubbed Mr “Sydney” real estate.

He was the inaugural chief executive when the group floated in 2015 but after a period as executive chairman he stepped out of the management role, only to return in April last year, replacing Eddie Law as the chief executive. He is also one of the largest single shareholders.

McGrath made the predictions based on historical evidence that cycles in “downward legs” last for about 18 months.

“We’ve been in this [cycle] now for 15 to 16 months and I think, on average, they last six to seven downward legs and have historically been down 8 to 9 per cent,” he said.

He said selling prices in most markets have corrected by between 10 per cent and 15 per cent from their peak in late 2021 and volumes were at least 20 per cent lower in the spring selling season, compared with the corresponding spring in 2021.

“So looking at historical data it would suggest we should be at, or near, the end of the downward cycle, and if you look at what’s happening in the street at the moment, there is plenty of demand,” he said.

McGrath was speaking after the release of the group’s half-year results, and said that overall, “we will look back and more than likely say the bottom could be sometime this year”.

For the half-year, McGrath reported a statutory net profit after tax of $1.8 million, down from $6.9 million in the prior corresponding period, reflecting the challenging market conditions that were flagged at the shareholder update last November.

The transition to a mainly franchised model is delivering a more reliable income from franchisees based on a fixed percentage of total sales commissions and that will help to underpin earnings for the full year.

The company has declared a 1 cent per share, fully franked interim dividend, payable on March 14 and it will continue with its on-market share buyback program, where $3.2 million has been acquired to date out of the target of $5 million.