Latest property price forecasts for 2023 revealed. What's ahead in our housing markets in the next year or two?

Source: Michael Yarney: https://propertyupdate.com.au/australian-property-market-predictions/

Key takeaways

• Australia’s housing market continues to defy expectations!
• Despite 12 interest rate increases from the Reserve Bank of Australia, which have seen official rates rise by 4 per cent over the last year, property prices have not only stopped falling, but they have now been on the rise for quite a few months.
• The peak-to-trough change in Australian house prices was 9 per cent according to Corelogic, and only 4 per cent according to PropTrack, which is confusing those analysts who were looking for prices to drop by 15, 20 or even 30 per cent on the back of interest rate increases.
• But now it is clear that our property markets have bottomed and we have moved into the next phase – the recovery phase – of the property cycle.
• Lower listing volumes (fewer properties for sale) are helping protect the market from further downward pressure.
• While many are concerned about a “fixed rate cliff” ahead, RBA data indicates the majority of mortgage debt is on variable terms. Many people have also been overpaying on their mortgages during the low interest rate cycle, while many others have already refinanced.
• Inflation has now peaked and it’s likely so have interest rates and in due course consumer confidence will return and the markets will continue their upward trajectory.
• But don’t expect a rapid recovery, and as I explain below our markets will be fragmented,
• And there is no end in sight for our rental crisis and rents will continue skyrocketing this year.

What’s ahead for Australian Property Markets?

What’s the outlook for the Australian property markets for 2023 and beyond?

Have our property markets really bottomed out? When will interest rates stop rising?

These are common questions people are asking now that the housing markets have had a number of months of rising values.

Well…it is becoming increasingly clear that our housing market has defied expectations and moved through the bottom of the cyclical downturn early this year.

Not only are we seeing housing values stabilising or rising across most areas of the country, but a number of other indicators are also confirming the positive shift which is only broadening.

Auction clearance rates are delivering strong, almost boom-time results, property buyer sentiment has lifted and more property sales listings are coming on to the market.

Of course, each State is at its own stage of the property cycle and within each capital city there are multiple markets with property values still falling in some locations and stagnant in others, yet there are many locations where housing values are now rising – in fact, CoreLogic reported that 35% of suburbs experienced rising real estate values over the last few months.

Property price changes around Australia

Source: CoreLogic 1st August 2023

The lift in housing demand coincides with the boom in net overseas migration.

Net overseas migration is forecast reach 400,000 this year.

The previous record high was 316,000 in 2008.

At the same time domestic demand remains amplified due to smaller household size, meaning we need more homes just for the same number of people.

It’s now clear the property market bottomed out early this year?

It’s no secret that the Australian housing market has faced its fair share of challenges over the past couple of years.

From the economic fallout of the COVID-19 pandemic to 11 interest rate rises, the lowest level of consumer confidence in decades and a continuous conveyor belt of negative messages in the media and tightening of lending restrictions, our property markets have faced considerable headwinds.

And despite some commentators predicting property prices would plummet by 15, 20 or even 30 per cent based on rising interest rates, the Australian property markets have shown remarkable resilience and have now turned the corner.

While the cash rate can be a good short-term indicator of price growth, other factors – including population growth and supply of dwellings to market – have had a more significant impact on dwelling values.

Until supply responds to demand, the upturn seems likely to continue.

The latest stats

• Dr Andrew Wilson’s My Housing Market reported that the national housing market continues to rise, albeit at a slower rate of 0.7% over the month of July – and increasing now over six consecutive months.
  According to Dr Wilson, the national capital city quarterly median house price increased by 0.7% over July compared to the June result – rising to $1,055,252,
• CoreLogic’s national Home Value Index posted a fifth month of recovery with national Home Value Index (HVI) rising 0.7% in July, with house price growth losing momentum over the last two months, with growth down from the 1.2% gain recorded in May. Since finding a floor in February, the national HVI is up 4.1%, following a -9.1% decline from record highs in April 2022.
• PropTrack reported that Australian home prices jumped again in July, rising 0.16% month-on-month. National prices are now higher than they were a year ago according to Proptrack.

Of course, there is not one property market.

Each state is at a different stage of its own property cycle and within each state, the submarkets are fragmented as each segment is affected differently by interest rates, the cost of living and our economic challenges.

For example, the more affluent suburbs in Sydney, which led the downturn just over a year ago, are currently leading the upturn.

Of course it makes sense that the more affluent population in these suburbs are not being hurt as much by rising mortgage costs, rising rents and the rising cost of living as the less affluent working-class suburbs.

The most recent property downturn has been shorter, but deeper than previous cycles, and while the supply-demand imbalance is currently pushing the market higher, the lack of rate cuts will limit any price increases.

It’s hard to see property prices rising as rapidly as they have in the past without rates falling, and that probably won’t happen till next year.

What’s driving these property price changes?

House prices are driven by many factors, not just interest rates. More important is consumer confidence and supply and demand.

Currently, demand for housing is booming, driven by a surge in migration and the return of international students.

It has been estimated an extra half a million people are going to have to find somewhere to live in Australia in the next two years.

This increase in population is competing with locals in the rental market, driving rents higher and spilling into property prices.

In contrast, the growth in dwelling supply is lagging, with building approvals for new homes at a decade low.

These issues are further hindering the growth of new dwelling supply.

You see…the construction industry is grappling with rising costs and labour shortages, which have led to the collapse of several small and medium-sized construction companies.

And construction costs have surged by over 25 per cent in the past two years, and builders are passing these costs on to homebuyers, directly impacting house prices.

At the same time, wages have grown, and the unemployment rate remains at a 50-year low, resulting in strong household incomes. This financial stability enables homeowners to absorb interest rate increases and to continue purchasing dwellings.

Once interest rates peak (and that may not be that far off), and once inflation peaks (and that’s probably already happened) consumer confidence will return and the market will reset as a new property cycle begins

However, in the short term, a significant surge in house prices is unlikely.

As interest rates remain restrictive and unemployment rates might increase in 2023, the positive impact of demand and supply issues will be limited.

What’s currently happening to property values in Australia

The following tables show what happened to dwelling prices around Australia since their peak.

Source: Corelogic- August 1st 2023

At the same time, we’re experiencing a rental crisis with historically low vacancy rates and rising rents.

Latest house “asking price” index

We keep track of Asking Prices as they are a good leading indicator for the property market because they reflect the sentiment of sellers and their expectations for the future value of their homes.

As homeowners prepare to sell, they often do research to determine the appropriate asking price, taking into account factors such as recent sales in the area, the condition of the property, and market trends.

Therefore, asking prices can provide an early indication of how the market is performing and the direction in which it is headed and in the past have proven to be very accurate leading changes in the direction of median prices by a couple of months.

Additionally, if asking prices rise, it may indicate that demand is increasing, which could result in higher sale prices down the road.

Australian housing market predictions

Now I know some potential buyers are asking: “Well, now that interest rates keep rising will the property market crash in 2023?”

hey have obviously been listening to those perma-bears who keep telling anyone who’s prepared to listen that the property markets are going to crash, but they’ve made the same predictions year after year and have been wrong in the past and will be wrong again this time.
You’ve probably also read those forecasts – you know…that property values will fall 20 to 25%.

In fact… Property Prices Will Fall 30% was a headline at the end of last year in the Australian Financial Review by a respected columnist, and here he was not talking about a specific segment of the market, but about “the Australian property market”.

And he’s probably not taking much “joye” in seeing how resilient our housing market is

Fact is…. a fall of this magnitude has never happened before.

Not during the recession of the 1990s, not during the global financial crisis and not during the period of a credit squeeze in 2017-18.

The worst slump in the overall Australian property market was after the credit squeeze on 2016-17 and when there were concerns around proposed changes to negative gearing before the 2019 election.

And at that time the peak to trough drop between December 2017 and June 2019 was 9.9%.

And considering the current state of the economy, our financial health and property markets there’s no credible reason to suggest a fall of this magnitude should happen now

We’re clearly moving into the next phase of the property cycle, but there are both headwinds and tailwinds for our markets to contend with.

Source: Michael Yarney https://propertyupdate.com.au/australian-property-market-predictions/