Rapid interest rate increases have eroded the optimism surrounding residential property, but a slowdown in rate rises in the second half of the year is expected to bring increased stability to the market, Herron Todd White valuers say.
“The confidence that existed in 2022 due to high household saving ratios has been eroded by increasing interest rates and inflation,” Kevin Brogan, National Director, Group Risk and Compliance, said in HTW’s latest Month in Review, which canvassed the group’s valuers for their 2023 property predictions.
“Eight consecutive increases in 2022 combined to deliver the largest annual increase in the cash rate since 1989,” he said.
“What happens next will have a significant influence on the residential property market in 2023.
“Once inflation and consequently interest rates peak, greater certainty and consumer confidence should bring greater stability to the residential property market in the second half of the year.”
Mr Brogan said that while higher interest rates were expected to create challenges for borrowers in 2023, there were reasons to remain optimistic about the property market.
“Many households were able to build reserves during Covid and the employment market is still strong,” he said.
“Although workers are returning to cities, the option to work remotely is here to stay for many office workers.
“Some fringe and regional markets are showing resilience as they are still attractive to buyers from metropolitan areas who find available properties relatively affordable.
“In locations where there is a restricted supply, this can partially offset a decline in demand.”
Sydney property predictions
HTW Director, Shaun Thomas said first-home buyer policies from both the NSW Government and the Opposition were likely to drive activity among first-time buyers in 2023.
“(First-home buyer schemes), along with federal and state shared equity schemes commencing, will likely mean the lower end of the market will be the most active in 2023, although there is expected to be an increase in overall sales listings after a subdued 2022 spring market,” he said.
He added that increased immigration and infrastructure projects would also boost the market.
“Whilst the outlook for 2023 is not overly buoyant, it is not all doom and gloom.
“Immigration rates are expected to continue to rise with more international students returning this year.
“These factors along with the previously mentioned infrastructure projects and development means there should be decent level of underlying demand.”
Melbourne property predictions
HTW Director, Perron King said it was likely Melbourne would follow other markets and experience a downward “correction” in prices due to rising interest rates.
“It remains difficult to predict how property markets will perform in the short to medium-term, although market fundamentals suggest an increasing likelihood of a downward correction in values,” Mr King said.
Despite this, there were other developments that would help drive activity, particularly in the inner-city.
“Immigration, new infrastructure and new developments in the CBD are all factors that could positively affect property values in the long-term,” he said.
“Despite the recent interest rate hikes, 2023 will undoubtedly offer many exciting opportunities for investors.
“As the post-pandemic era begins, the reopening of borders has brought back international students and young professionals, the way work and teaching is done has almost returned to pre-pandemic levels, university lecturers are once again moving from online courses to face- to-face classes and companies are encouraging their employees to return from home offices to physical CBD offices.
“These changes have driven rents in the CBD to their recent peak in December 2022, breaking the pandemic-era depression.”
Brisbane property predictions
HTW Director David Notley said Brisbane was well-placed to ride out the housing downturn when compared to other east coast capitals.
“Homing in on our region and, on balance, Brisbane seems well placed to ride out the year in comparison to Sydney and Melbourne,” Mr Notley said.
“Our net internal migration numbers are running at historic highs.
“Many property owners in Victoria and New South Wales are looking to make the shift up to Queensland and most will settle in and around Brisbane.
“Helping in their decision is infrastructure investment, especially leading up to the 2032 Olympic Games.”
Adelaide property predictions
HTW Property Valuer, Nick Smerdon said inner ring, outer ring and land markets were the ones to watch in 2023.
“It’s expected that the broader market will stabilise in 2023 as market participants navigate interest rate movements and demand and supply factors,” Mr Smerdon said.
“If the market does trend downwards, vendors and purchasers should have confidence that downward cycles have historically been marginal and short-lived.
“Market segments to watch in 2022 will be the inner ring, outer ring and vacant land markets.”
Perth property predictions
A supply/demand imbalance meant that Perth’s market was well-positioned to rise out the current rate cycle, HTW Director, Chris Hinchliffe said.
“There is great underlying strength in the Western Australian property market despite this (interest rate) uncertainty, with the key driver being strong demand far outstripping chronic undersupply, resulting in a solid foundation for further growth in 2023,” Mr Hinchcliffe said.
Despite an expected uptick in supply during 2023, it would not be enough to resolve this imbalance.
“As housing projects begin to come to completion in 2023 it will bring quite a few properties to the market which should result in an increase in sales activity,” he said.
“However a lack of new building contract signups will have a lingering impact, resulting in undersupply for several more years to come.”
A large number of job vacancies would also help drive growth.
“There are thousands of jobs that still need filling and supply constraints remain at the forefront of many sectors,” he said.
“Supply of materials and labour continues to be an issue creating many bottlenecks that are being felt across the board, keeping supply of new stock well below historical averages.”
Darwin property predictions
“Supply of new housing in the short to medium term is limited and tightly held with the only noteworthy developments trickling vacant lan into the market being at Lee Point, Berrimah and Zuccoli,” HTW Property Valuer, Peter Nichols said.
“Darwin is still at least two years from seeing any larger scale land releases to ease this demand.
“Though the new Charles Darwin University campus in Darwin’s CBD is also 18 to 24 months off completion, the student intake has increased with the university making nearly 2000 offers to students for 2023.
“With this being ever increasingly international students, the most likely accommodation is investor-held unit stock.”
Canberra property predictions
HTW Associate Director, Angus Howell predicted that Canberra’s prestige market would continue to see prices increase in 2023.
“Desirable properties at the top end of the market will continue to see increases in prices due to market demand,” Mr Howell said.
“Suburbs such as Deakin, Narrabundah, Griffith and others in the inner south are most likely going to see this increase.”
Unit prices would also benefit from first-home buyer demand, he added.
“The price of units will remain steady due to purchasers and first homebuyers seeking more affordable options, however there could be a slight decrease in unit prices due to a potential oversupply of new units in recent years, well above historic levels, particularly in Gungahlin, Weston and the city,” he said.
“The demand for vacant land will continue to increase with limited land availability within the ACT and an increase in foreign buyers looking into the Canberra market.”
Hobart property predictions
HTW Property Valuer Mark Davis said that Hobart’s more affordable suburbs were the ones to watch this year.
“With reduced borrowing capacity, suburbs to keep an eye on would be at the lower end of the value spectrum,” Mr Davis said.
“Northern suburbs such as Moonah, West Moonah, Claremont, Austins Ferry, Glenorchy etc. are still relatively affordable.”
He predicted that rental vacancies would remain tight, but warned it would not always make sense for investors to hold on to properties.
“Rental vacancy rates are still at all-time lows with under one per cent vacancy,” he said.
“Weekly rental prices remain strong but with increased borrowing rates, gross yields are reducing and in some cases, you may be better off with the cash in the bank as this provides a reduced risk as the purchase of a property given current market conditions may reduce in value in the short term.”
Rising and declining markets revealed
The HTW report analysed markets throughout the country, sorting them according to where they were in the property price cycle.
House markets at their peak included Albany, Alice Springs, Bathurst, Broome, Canberra, Darwin, Dubbo, Mildura, Mount Gambier, Newcastle, Shepparton, South West WA, Tamworth and Toowoomba.
House markets starting to decline included Adelaide, Adelaide Hills, Albury, Barossa Valley, Burnie/Devonport, Central Coast, Coffs Harbou, Gold Coast, Launceston, Melbourne, Sunshine Coast and Wodonga.
Declining house markets included Ballina/Byron Bay, Brisbane, Geelong, Hobart, Illawarra, Ipswich, Lismore, Southern Highlands and Sydney.
Rising house markets included Emerald, Esperance, Karratha, Rockhampton, the Southern Tablelands, Townsville and Whitsunday.
House markets approaching their peak included Bundaberg, Cairns, Fraser Coast, Geraldton, Gladstone, Kalgoorlie, Mackay, Perth and Port Hedland.
Unit markets at their peak included Albany, Alice Springs, Bathurst, Brisbane, Burnie/Devonport, Mildura,, Mount Gambier, Newcastle, Shepparton, South West WA, Tamworth and Toowoomba.
Unit markets starting to decline included Adelaide, Adelaide Hills, Albury, Barossa Valley, Central Coast, Coffs Harbour, Gold Coast, Ipswich, Launceston, Melbourne, Sunshine Coast and Wodonga.
Unit markets in decline included Ballina/Byron Bay, Canberra, Geelong, Hobart, Illawarra, Lismore, the Southern Highlands and Sydney.
The Southern Tablelands was the only unit market in the ‘start of recovery’ category.
Rising unit markets included Cairns, Darwin, Dubbo, Emerald, Esperance, Geraldton, Karratha, Mt Gambier, Rockhampton, Townsvill and Whitsunday.
Unit markets approaching their peak included Broome, Bundaberg, Fraser Coast, Gladstone, Kalgoorlie, Mackay, Perth and Port Hedland.