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The capital city predicted to record the strongest growth in 2022

Capital city property prices will continue to rise in 2022, peaking in the first half, then slowing sharply from the middle of the year, new data suggests.

The sudden turnaround will be the result of expected further intervention by the banking regulator to restrict home lending, according to Christopher’s Housing Boom and Bust Report 2022, released by SQM Research.

The research predicts Brisbane will record the largest dwelling price rises over 2022, at between 8 per cent to 14 per cent, compared with rises of less than 4 per cent in Sydney and Melbourne.

Brisbane house prices will be further supported by expected strong interstate migration flows given relatively good housing affordability compared to two larger capital cities.

This gain will nevertheless represent a slowdown compared to 2021 increases of more than 22 per cent, the research showed.

Across the country’s capital cities, it’s forecast that price rises will continue through the first half of the year, albeit significantly slower than the current annual 20 per cent plus rates being seen.  

These slower rises are expected to be followed by price falls in mid-2022, led by Sydney and Melbourne houses, which, according to SQM Research, are currently recording significant overvaluation.

These cities are the most sensitive to even minor intervention by the banking regulator, the Australian Prudential Regulatory Authority (APRA) in home lending.

Melbourne and Sydney were most affected by APRA’s intervention in 2017 and given very stretched valuations on SQM measurements, Sydney and Melbourne were most susceptible to any action that restricts home lending.

Melbourne could be further affected by migration to other states. However, this will likely be offset by a rise in net overseas migration expected next year, the report showed.

In both large capital cities, 2022 should see a turnaround in the unit rental markets and unit price growth could outperform that of houses.

With houses being overvalued, apartments are relatively affordable and are expected to be in greater demand from an expected rise in net migration from interstate and overseas with Australia’s border now open.

Louis Christopher, Managing Director of SQM Research, said as 2021 drew to a close, the national housing market was starting to show signs of a peak.

Auction clearance rates had fallen from their highs amid record listings, Mr Christopher said.

“However, we may also be recording some seasonality and pent-up selling after vendors held off listings during the lockdown,” he said.

“Nevertheless, we expect the market to peak in 2022, with further expected intervention by APRA, which could come as early as next month, halting the price momentum.”

If the Australian housing market does not slow down by mid-2022, APRA would likely keep intervening in home lending until the market did slow down, suggested Mr Christopher.

“We cannot afford another year of 20 per cent plus gains across the national housing market. And so, to ensure a soft landing for the market, it is best we see additional intervention sooner rather than later to rein in property valuations.”

Other forecasts from Christopher’s Housing Boom and Bust Report include:

  • Dwelling prices in regional Australia to correct, particularly for inland communities, as people return to the capital cities.
  • Official interest rates are likely to stay on hold until at least late 2022.
  • Further APRA intervention to occur as early as December 2021.
  • Expected dwelling price corrections to be moderate unless exacerbated by aggressive monetary policy action involving rate rises earlier in the year.
  • Ongoing rental rises for capital cities over and above the CPI change.

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Nicole Madigan

Nicole Madigan is Senior Journalist and Content Producer for Elite Agent.