La Nina is bringing cool weather and rain to the south east of our country, and while there’s a risk it could dampen our spirits, will it have the same cooling effect on our white-hot property market?
Fuelled by record low interest rates, the Australian property market is hotter and more resilient than ever. Relatively unscathed by an ongoing sequence of lockdowns across the country, it seems inevitable that price growth must eventually slow. Rate hikes on fixed rate mortgages, intervention from the Australian Prudential Regulation Authority (APRA) and an increase in supply point to yes, but could rising consumer confidence and the opening of international borders continue to put upward pressure on prices?
The market at a glance
According to Domain’s latest House Price Report, house prices nationally are up 21.9% year-on-year (YOY). Canberra saw 32.4% YOY growth, the biggest upswing in the capital’s history and the strongest growth nationally. Over the same period, Sydney house prices rose by 30.4%, Melbourne 16.8% and Brisbane 15.3%.
According to CoreLogic, Brisbane and Canberra are yet to experience a slow down in the monthly rate of growth while Sydney and Melbourne have begun to show signs of the rate of growth steadying. This is likely linked to the level of stock on the market, with Brisbane supply levels in November for example -33.9% lower than the five year average whereby Sydney listings were sitting just -2.6% below the five year average.
Factors that will influence the market in 2022
Interest Rates
Just as low interest rates are at the heart of soaring property prices, a hike in rates will play a pivotal role in moderating the market. Banks have already lifted the rates for fixed-rate mortgages and while the effect of this rise won’t be felt immediately, it will slowly steer the market into a correctional phase.
The Reserve Bank of Australia is expected to lift the official cash rate from a record low of 0.1% to 1.25% by mid to late 2023. This increase will directly impact affordability however, house prices most certainly won’t fall off a cliff and will remain strong throughout most of 2022.
APRA
The Australian Prudential Regulation Authority (APRA), an independent authority that supervises financial institutions and promotes financial stability, is intent on slowing the rate of house price growth across the country.
In October this year, the bank regulator reduced the maximum amount that home buyers can borrow, with banks now having to assess whether potential borrowers could still service their loan if interest rates rose above their mortgage rate. Continued intervention from APRA is likely to slow the growth of Sydney and Melbourne house prices more than it will the rest of the country as these two cities have the most overvalued house prices.
Migration
While interest rate hikes coupled with APRA intervention may put downward pressure on house prices, the return of international migration could translate to continued growth. As borders reopen to migrants and returning expats, a price slow could be curbed, particularly for Sydney and Melbourne, where migrants tend to flock to first, and to a lesser extent in Brisbane and Canberra.
So, where does this leave us?
After an incredibly strong year for house price growth, we should see the market consolidate in late 2022 – welcome news for hopeful buyers. For existing homeowners looking to upgrade, downsize or move, 2022 will be as great a time to sell as any, with the house price surge directly linked to an increase in equity.