In retrospect, 2021 has been a golden year for the real estate market in Australia. Will it continue to gleam brightly or will it start to rust this 2022?
Find out what the experts have to say about this.
With the abundance of “fear-of-missing-out” circumstances in 2021, the past year showed the highest 12-month growth rate since 1989. Hobart was revealed as the hottest capital city property market with prices climbing up to 27.7%. Similarly, values have arisen in other capital cities: Sydney (25.8%), Brisbane (25.1%), Canberra (25.4%), Adelaide (21.4%), Darwin (16.7%), Melbourne (16.3%), and Perth (14.5%).
This 2022, prices are still expected to rise but will cool down before falling in 2023, experts say.
The National Australia Bank (NAB) foresees a 4.9% increase in property values in 2022 and a 4% decline in 2023. Australia and New Zealand Banking Group (ANZ) predicts a similar pattern with a lift of 6% this year and a decrease of 4% next year. Likewise, the Commonwealth Bank expects house prices to lift by 7% in 2022 and assumes the biggest price drop in 2023 out of the major banks, by 10%. Finally, Westpac is looking into an 8% rise this year and a 5% fall in 2023.
The common denominator in all these forecasts is rising interest rates and/or increasing regulatory limits on how much people can borrow. House prices and interest rates are inversely proportional with each other: when one goes up, the other goes down.
In terms of this, the Reserve Bank of Australia (RBA) mentioned that it won’t lift the cash rate until inflation reaches the 2 to 3 per cent range. In fact, it has left its official interest rate target on hold at a record low 0.1% and will continue its $4-billion-a-week bond-buying stimulus program until at least mid-February this year. Until then, the bank’s policy will remain unchanged since its last meeting in November of the previous year.
On the other hand, banks have already started hiking fixed rates while cutting variable rates to attract new customers. Hence, RateCity’s Sally Tindall said borrowers need to be prepared for rate rises in 2022.
“Banks are focused on gradually nudging up rates, and so borrowers need to be prepared to pay more for money that they take out,” Ms Tindall added.
When it comes to lending rules, last October, the Australian Prudential Regulation Authority (APRA) increased the minimum interest rate buffer on home loan applications from 2.5 to 3 percentage points. It estimates that the increase will reduce “maximum borrowing capacity for the typical borrower by around 5 per cent”.
Some analysts expect APRA to intervene again this year by setting a limit on loan-to-income ratios, which are currently at risky levels. “The regulator could also impose a limit on borrowers with loan-to-valuation-ratios LVR of 80 to 90 per cent.”
Felicity Emmett, ANZ’s senior economist, mentioned primary factors that contribute to the growth of property prices.
“Affordability constraints and the increase in the supply of homes for sale–with record auction volumes and a significant lift in property listings in late 2021–were the main factors currently driving the moderation in price growth.”
How Omicron Affects 2022 Figures
Values in the region are revealed to be higher than those in capital cities with 30.4% and 24.6% in figures respectively.
One of the paramount factors for this data is the relocation of people from the city to the regional areas trying to escape COVID-19 lockdowns.
“If you look at the regional market, it’s those well-connected, commutable regions that have good infrastructure and service provisioning that are going to continue to see heightened demand,” highlighted REA Group’s Eleanor Creagh.
Lifestyle locations such as Queensland are also expected to do well in 2022 as people continue to leave states hardest hit by the COVID-19 pandemic.
Some analysts conclude that if people will have continuous fears for a new COVID variant such as Omicron, house prices could lift into double digits again this year.
“The Reserve Bank of Australia would hold fire on any planned interest rate rises,” said SQM Research’s Louis Christopher.
The emergence of Omicron for Ms Tindall is a timely reminder that we can never be certain despite anyone’s best predictions. “It’s too early to say what impact this new strain will have on rates, however, if borders keep opening and shutting, confidence is likely to take a hit,” she mentioned.
On the contrary, Pete Wargent, co-founder of BuyersBuyers said that the Omicron strain will have a negligible impact on the trajectory of the housing market. “While Omicron has threatened border reopening and restriction extensions like mask-wearing, experts say the new variant is unlikely to play a role in the nation’s real estate finances.”
“To a certain extent, the last couple of years should have reminded us that making predictions is very hard, especially when they are about pandemics or the future. But, that said, there’s little to indicate that the latest strain of the virus will have any meaningful impact on housing market trends.”
What’s in it for First Home Buyers?
First home buyers started the year 2021 strong with a record-high number of first home buyer loans until it gradually declined month after month.
Ms Tindall expects the same scenario to continue this 2022.
According to the Australian Bureau of Statistics (ABS) lending indicators, the number of new loans being taken out by first home buyers has decreased by 11% in a year while the amount borrowed by them increased to 1% as house prices are directed upwards.
CoreLogic’s Eliza Owen warns that “first home buyers dropping out of the market now will compound wealth inequality down the track.”
“If you’re not in the property market, and you’re just trying to save up, say, a 20 per cent deposit, property prices can really run away from you.”
4one4 Property Co.’s Position in 2022
May all these predictions for the real estate industry this 2022 be true or may slide in an instance or two, as an inclusive agency, 4one4 Property Co. will continue to help everyone in their property journey regardless of their situation.
Our Team is so excited to discover with our present and future clients what really is in store this 2022! If you’re feeling the same positive energy, reach out today and we’ll help you achieve that Great Australian Dream!
