November 20, 2022

As we wrap up the end of a very interesting year, we reached the December period with another 25 basis point rate rise from the RBA.

While the general assumption across the property market is that the price decline is “tapering off” and that the prices of homes and apartments are “flatlining.”

Or if you are a subscriber to Corelogic: “Property values continued adjusting, but the pace of decline has slowed as low stock levels persist and buyers push ahead with purchasing despite rising interest rates.”

Nevertheless, sticking to the real estate cycle we all know well – December has brought to new light the possibility and evidence of “Australian House prices to rise.”

Let’s take a deeper look at what is currently going on in the market.

Interest Rate Rises

As of the first Tuesday of December, the cash rate is now 3.10 per cent. Annual inflation is now 6.9 per cent to October 2022 and has begun trending downwards. Whilst unemployment is at 3.4%.

While interest rates affect how much people can borrow, what most people forget to remember is that it doesn’t affect people’s intent to purchase, just what they can purchase, which influences house prices.

However, as we all know, throughout history, property prices have increased with inflation, regardless of the rising interest rates.

Despite the recent correction in the market and even with the downturn scenarios, property remains the safest long-term investment.

According to Corelogic’s latest report, if housing values decreased by 10% nationally, it would take values roughly back to July 2021 levels. If the market fell by 20%, values would be similar to January 2021.

As a result, it will continue to display a solid equity position for all buyers, particularly those who purchased before 2021.

National median house price - decline scenario

Current Property Market and Predictions 

According to a new report from SQM Research, “Housing Boom and Bust Report for 2023”,  when the Reserve Bank pauses rate rises, and inflation is tipped to begin to drop, Australian house prices will rise.

The report forecasted that capital city house prices would see a rise of between 3 and 7 per cent in the coming year of 2023. This forecast is based on the following:

  • The RBA keeps the cash rate no higher than 4 per cent
  • Inflation drops to 5 per cent
  • Unemployment stays below 5 per cent

“If the cash rate target stays below 4 per cent, then it is unlikely we will have a flood of forced sales in the housing market,” says Managing Director of SQM Research, Louis Christopher.

“There is, of course, a risk the RBA may need to go further. If they do, then the risks of a hard landing in the economy do substantially rise and, thus, a hard landing in the housing market would also occur.”

house price growth

Source: SQM Research’s annual Housing Boom and Bust Report 2023

What have we seen across the finance side of property throughout 2022?

It can be expected that with the rise of inflation, interest rates were to increase alongside. And when interest rates are rising, we will see lenders tightening their lending policy and requirements as well as tightening how much they allow Australians to borrow.

Due to the increase in rates, everyday Australians’ borrowing capacity has significantly decreased.

“Lenders are now more cautious with who can borrow and are taking extra measures to ensure the borrower can meet their repayments at their stressed serviceability rate”, said Natalie Elazzi, Finance Specialist at St Trinity Property Group.

According to CoreLogic, there has been a sharp drop in the value of lending since the first rate hike in May

australian financial review

However, while new housing finance has declined, external refinancing remains elevated, according to Ms. Elazzi.

“We would have thought that due to the continuous effect of interest rates rising that purchasing and investing in property would slow down, however, investors are not afraid at this time and are buying more than ever.” She said,

Here are three trends Ms Elazzi has noticed recently:

  • Applications during the rate rise at one point were at an all-time high.
  • It is noticeable with current applications that people are opting for variable rates as fixed rates at this time are higher.
  • Borrowers don’t want to be locked in on higher rates if there are chances that rates may drop within the next 12 months.

What about the rental market?

Sydney’s rental vacancy rate was down an additional 0.1% to 1.3% over November, having reached a high of 4.3% in May 2020.

Asking rents have also been on the rise, with a steep increase since mid-2020, to just under $900 a week, according to SQM Research.

Extremely low vacancy rates and higher demand from overseas migration are likely to keep upward pressure on rents, especially for the units sector.

In fact, migration will continue to be the biggest push for 2023. We have already seen the impact on rent, and in the longer term, we will see the same impact on property purchase.

rising rents

What’s the outlook for the 2023 Property Market?

Sydney Property Market 

Looking to 2023, Sydney real estate is about to undergo what looks like a “perfect storm”.

We as a country are about to pick up a considerable surplus in overseas migration set to return from pre-covid periods, rental accommodation shortages and a robust economy.

We will see a continuation of the following:

  • Low supply of new apartments – thus keeping vacancies tight.
  • High demand from the rise in overseas arrivals and rental accommodation shortages
  • Our Economy is still growing strongly, with a low unemployment rate
  • Affordability Gap – is drawing owner occupiers and investors towards units.

Pair the above with great government incentives and limited deposit schemes from developers now on offer, and the lifestyle/location of apartment living is now looking extremely appealing. Where more often than not, current weekly rental payments outweigh mortgage repayments. (Great for investors and a fantastic opportunity for renters to purchase their first property)

SQM Research’s report forecasts that Sydney will see the most significant lift in property values between 5 and 9 per cent. They also threw in that the New South Wales government’s stamp duty & land tax changes would drive the recovery in Sydney.

sydney housing market

“I believe 2023 will start off with a bang,” Said Ms. Elazzi

“When interest rates do start to fall, consumer confidence will rise, and a spike in loan applications and properties being purchased will create a boom in the market. The property market doesn’t seem to be slowing down, thus finance will continue to be consistent alongside”

Moving around the country

Perth house prices are forecast to jump a further 8 per cent on the back of solid rises in employment and interstate migration.

Melbourne and Brisbane’s pace of growth is expected to be a little slower, expecting anywhere between; 1 -5 per cent. Adelaide’s property market is forecasted with the potential to either stay flat, or record growth of up to 5 per cent – let’s wait and see.

In Hobart, property values are forecasted to either fall 1 per cent or increase up to 3 per cent, with property values across Canberra potentially dropping 3 per cent or rising a further to 2 per cent.

And finally, Darwin is expected to be the weakest housing market as we head into 2023, with the SQM report forecasting falls of up to 5 per cent.

Final Words

Now more than ever, the right off-the-plan project in the right location could be a perfect solution to your real estate needs.

2023 will be a great time to look at “property as a solution” and source stock where you can lock in today’s price and settle in 1-3 years in the future – preferably spending your money where the government is spending theirs.

Have any questions? Or interested in purchasing property?

Chat with our team at St Trinity today for all your property needs on (02) 9099 3412 or enquire below.

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