2021 was the year of record low rates, record high prices, soaring demand and limited supply. In stark comparison, by early 2022 we transitioned from a once-in-a-generation boom to a market downturn. Alas, if the last two years reinforced any real estate truths it’s this: the property market will always cycle through upswings and downturns.
Whether it was by the water cooler, around the kitchen table or over text message, many of our conversations this year centred around the property market. Conversations were spurred by boundless media coverage and an almost unanimous forecast from banks and economists alike of impending doom and gloom. Yet as we look back on the year, and forward to what lies ahead, it seems the property market, while moving through what was an inevitable downward cycle, is once again proving to be resilient.
2022 at a glance
Eight consecutive rate rises this year, the fastest surge of rate hikes by the RBA since the early 90’s, undoubtedly pulled up the hand brake on the housing market. We witnessed borrowing power decline and prices across the country follow suit. According to Domain data, house prices across the combined capital cities switched from the steepest annual growth rate on record in 2021 to the fastest quarterly decline on record in 2022. With softening prices and an increase in supply, the market began to slowly shift in favour of buyers, as for the first time they had greater bargaining power. At the same time, the rental market was squeezed to its limits, with national vacancy rates hovering around 1% nationally for much of 2022.
What lies ahead for 2023?
The downturn won’t wipe property price gains from the boom
It is likely that property prices will continue to soften as we move into 2023. However, it is unlikely that the monumental growth seen during the pandemic boom will be erased. House prices across much of the country remain significantly higher than pre-pandemic levels. According to Domain data, house prices across the combined capitals have fallen 4.9% from the March 2022 price peak, down about $53,000. However, this price cycle remains 27% higher (about $218,000) than the mid-2020 trough. Overall, as we move into 2023, there will likely be a slowdown in the pace of decline as the market moves into a recovery phase.
Interest rate shock has worn off
After an aggressive cycle of hikes by the RBA, it’s safe to say interest rate rise shock is wearing off. Buyers have adjusted, reassessed their borrowing power and are now planning to factor in future rate hikes. When it comes to interest rates, it is being widely forecast that if the RBA successfully halts inflation, rates may begin to come down in the second half on 2023 which would put the wind back in the sails when it comes to property price growth.
Liveability is more important than ever
The impacts of COVID-19 on the property market will continue to be felt in 2023. As the working from home trend is cemented as the new normal for many, buyers are willing to pay a premium for properties with dedicated office spaces located in liveable neighbourhoods. Buyers are increasingly seeking homes in areas with local shops, services, schools and community facilities and we will likely see demand in such areas grow throughout the new year.
Investors will return to the market
Lastly, the most significant trend we will see in 2023 is investors returning to the market. For investors, there’s less competition, rents are high and vacancy rates are incredibly low. With rents rising at a time when property prices are falling, rental yields are rising to make the market more enticing than ever to investors as they have an opportunity to benefit from both high rental income and capital gains.
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