Core-Logic-house-hold
Image – Canva
  • The 2022 property market saw the tail end of a housing boom turn into a significant downturn
  • Downturns tend to be shorter than upswings
  • Surge in immigration is expected to bolster housing demand

After what has been several chaotic years in not just the property market, but in the world overall, one of the largest property marketplaces in the country has published a report that outlines what trends it expects to occur in the next year.

What a difference a year can make…

Before delving into predictions for next year, Domain’s Chief of Research and Economics, Dr Nicola Powell, noted that Australia’s 2022 property market will be defined as a year that went from a once-in-a-generation property boom to a downturn.

“2021 was an exceptional year when housing demand rose to an all-time high, house prices soared, supply dwindled, interest rates hit rock bottom and buyer priorities shifted,” said Dr Powell.

“This created an eye-watering pace of growth that was not sustainable in the long term, and affordability became a heightened issue for buyers.

Dr Nicola Powell. Image – Domain.

“In 2022, buyers found a greater choice of homes for sale but faced the rising serviceability costs of a home loan. The rental market became extraordinarily tight, our CBDs returned to life, tourism and overseas migration trickled back and skilled migration became a key focus for population growth – aligning with Domain’s predictions for 2022.”

Nicola Powell, Domain

Change in house prices this property cycle

change in house prices this property cycle
Source – Domain.

Analysis from Domain has revealed that the most wanted type of housing was a Four-bedroom by two-bathroom house, a two-bedroom, one-bathroom unit or a three-bedroom, two-bathroom houses.

The most wanted school catchment was East Doncaster Secondary College in Melbourne. Notably, lifestyle additions and locations were high on wish lists, with popular searched keywords including pool, waterfront, beach and view. Also, a study was a popular search term.

  1. Downturns tend to be shorter and less severe
  2. A fragmented property market creates upgrade opportunities
  3. Interest rates are one of the many factors to influence price
  4. An immigration surge will boost housing demand
  5. A price premium for the right neighbourhood

1. Downturns tend be shorter and less severe

Firstly, Dr Powell noted that economic shifts and global influences are already making their mark on consumer sentiment and thus the property market.

“It’s a timely reminder that property moves through upswings and downturns,” she said.

Domain’s analysis of the combined capital cities’ house price cycles shows that, in the last 30 years, the duration and steepness of an upswing tend to be longer and greater compared to a downturn.

“While property prices will continue to soften in 2023, it is unlikely they will erase all the growth seen during the pandemic boom. This tells us we need to view property as a long-term investment; if we do, timing becomes less important. It’s the time spent in the market that counts,” she said.

2. A fragmented property market creates upgrade opportunities

Dr Powell believes a multi-speed market will become more apparent in 2023, with some areas falling at a fast pace while others are more resilient. This is due to the fact that Australia consists of multiple property markets – not just one.

“There are numerous markets within a capital city, between property types and price points. They behave differently, operating at slightly different times, paces and even directions,” said Dr Powell.

“Overall, entry-priced houses and units will hold firmer, particularly in our most expensive capital cities. This will be driven by the affordability barriers of purchasing, first-home incentives and deteriorating borrowing capacity steering demand to more affordable options.”

Dr Powell said this will reverse the record price gap between houses and units during the most recent housing boom.

“Together with houses at the premium price point seeing greater falls, it’ll create opportunities for upgraders,” she added.

3. Interest rates are one of the many factors to influence price

The speed and scale at which prices soften will be influenced by many factors. However, the depth of the downturn will be primarily shaped by how high interest rates go, and when and how quickly they ease.

Initially, rate hikes were a shock to potential buyers in 2022. Buyers have now adjusted to this new norm and will be forward planning, pricing in a buffer for further rate hikes and more mindful of their lower borrowing capacity,” said Dr Powell.

“2023 will test the serviceability of mortgage holders as record low fixed rates secured in 2021 begin to expire. However, the majority of the rate rises are now behind and they could start to fall again by late 2023. Interest rates are not the only factor influencing housing prices.”

Tax settings, population and income growth, banking regulation and the response of new housing supply to growing demand will all make an impact.

4. An immigration surge will boost housing demand

Dr Powell noted that Australia’s economy has historically be based on strong levels of overseas migration and international students, which is one of our largest exports.

Due to the pandemic, this dipped into negative for the first time since World War II, having a jolting impact on rental markets.

“As part of the budget, the Australian government has increased its quota for the permanent Migration Program to address the skills shortage gap – essentially the biggest immigration drive ever for Australia,” she said.

“This will boomerang back as an influx of people arrive from overseas and add additional demand to our housing market. Initially, this will place a further strain on the rental market (that’s already a landlords’ one nationally).

“Rising rents will make purchasing more attractive for strategic investors who focus on long-term fundamentals.”

5. A price premium for the right neighbourhood

Some suburbs have extra appeal and sparkle, which buyers are willing to pay a premium for .

Dr Powell noted that the pandemic created one of the greatest lifestyle shifts Australia has ever experienced. She expects it to leave a legacy.

“It has emphasised the importance of the home and our surrounding community, and the ability to work, live and play within a short distance of where we reside,” she said.

“This has heightened our desire for more space, added security, the balance of life, the right amenities, education, sports facilities and green space. The areas to watch will be the ones that offer the ultimate livability; they may be the ones that are gentrifying, offer a certain lifestyle or have easy access to everything.”



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