This could be a slow process though, given high rates
Relocating owner-occupiers, or “movers,” might start returning to the market, after having been relatively inactive over the past year or so, but with mortgage rates still high, it could be a slow process, according to CoreLogic.
Kelvin Davidson (pictured below), CoreLogic chief economist, at the headline level, movers haven’t been as active compared to the long-term average, accounting for 26% of property purchases in Q2 2023, well below the long-run movers average of 29%.
“It’s not hard to find the reasons for this relative lack of activity,” Davidson said. “For a start, general market confidence levels have been low, and movers won’t have been particularly keen to relocate when they weren’t sure about how long it might take to sell their own house first and of course what price they might achieve. Difficulties in getting bridging finance have also meant that people have needed to sell before they buy, and this introduces ‘conditional offers’ and delays in housing chains.”
It might also be that some households have been trying to avoid triggering a “credit event,” he said, including a new loan/house move, top-up, or bank switch – given the intense income and expenses checks this would involve. Instead, these households have likely been more focused on paying down existing debt and managing the progressive rise in mortgage rates.
“In addition, although the available stock of listings on the market through the end of 2021 and most of 2022 has been relatively high, albeit coming down now, some of this is likely to be ‘stale stock’, and the lack of new listings has probably meant that would-be movers haven’t been able to find what they want as easily as in the past either,” Davidson said. “At the same time, there’s certainly been an increase in ‘loving not listing’, with alterations and additions activity rising.”
CoreLogic also analysed its movers data by category: upsizers (the new property carries a council valuation at least 10% more than the last house), downsizers (at least 10% below previous CV), or shift to a new area.
“This segmentation shows upsizers have been less prominent lately,” Davidson said. “After a relative rise in activity in the two to three years prior to COVID, their overall share of property purchases has dipped since the 2020 peak (7.6%) and currently sits at around 6%.”
After all, as highlighted in a recent Pulse article, it still takes a lot more funds – either debt and/or equity – to trade up the housing ladder.
“This financial hurdle may have put some would-be upsizers off, especially when mortgage rates have been steadily increasing too,” Davidson said.
In the case of downsizers, activity troughed in the early stages of COVID then became a more prominent feature of the market in 2021. From 4.6% of purchases in Q3 2020, purchases by downsizers increased to 6.3% in Q1 2022.
“To some extent this goes against the perception that many households were desperately looking for more space for working from home in the post-COVID period – although no doubt that did happen in some cases,” Davidson said. “Since that early 2022 peak, the proportion of downsizer activity has drifted lower again, perhaps as house price falls have reduced the scope for people to ‘cash in’ and free up equity through moving to a smaller property.”
The COVID period, 2020-21, also saw an increase in “new to area” moves, lifting from about 4% of all purchases in early 2020 to a peak of 6% in Q1 2022, when property prices started to fall, CoreLogic data showed.
“In other words, there are hints here of a hunt (at least to some degree) for ‘quieter spaces,’ with more people shifting to new regions,” Davidson said. “Clearly, the normalisation of remote and hybrid working models will have helped in this regard – although since the market’s peak in late 2021, that relative share of ‘new to area’ moves has tailed off again.”
So, what’s next from here?
“As buyer confidence starts to return, we suspect that the overall portion of property purchases going to movers will increase in the coming quarters – which of course may also help the flow of new listings to market,” Davidson said. “Of course, the hurdles of raising extra finance at a higher mortgage rate and serviceability test rate may mean a slow return to the market for movers.”
“Within that potential overall shift, it could be that both downsizing and upsizing play a role. In the case of upsizing, this may be due to some households looking to get that bigger property before any medium-term growth in house prices pushes it out of reach again.
“Meanwhile, downsizing could be a form of protection against mortgage stress as households that are struggling with higher repayments after repricing look to trade down and ease the strain before there’s any risk of a forced/mortgagee sale.”
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