2022 was a roller coaster for property – 5 trends to watch for 2023

Key takeaways

Australia’s property market saw highs and lows with property prices at a record early in the year then quickly turning to the fastest quarterly decline.

The unit market showed resilience in the smaller capitals with prices in Brisbane, Adelaide and Canberra reaching new peaks.

Across the combined capitals, unit prices also held firmer than house prices.

The smaller capitals and some regional areas rose to new heights with the number of property sales soaring in these areas above the decade average.

2022 was the third-busiest year on record for Australia’s auction market with auction volumes 19% higher than the five-year average.

Keyword searches on Domain showed that lifestyle additions and location were high on wish lists, with ‘pool’, ‘waterfront’, ‘beach’ and ‘view’ taking out some of the top spots.

We're just a few weeks away before the year ends.

And boy, what a year it has been for property!

In fact, commentaries say that Australia's property market in 2022 will be defined as the year that transitioned into a downturn from a once-in-a-generation property boom.

2022 Property market highlights

Well, following extraordinary price growth in 2021, the market saw a stark contrast with house prices across the combined capital cities switching to their fastest quarterly decline on record.

Whilst this occurred, the property market rapidly shifted to provide buyers greater negotiation power as supply rose and prices softened.

Meanwhile, affordability became an issue due to consecutive rate hikes and rising inflation creating weaker consumer confidence.

In 2022, house prices across the combined capitals have fallen 4.9% from the March 2022 price peak, down about $53,000.

However, this price cycle remains 27% higher (about $218,000) than the mid-2020 trough.

While house prices are continuing to fall off the back of the fastest surge in interest rates since the early 1990s, they remain significantly higher than the pandemic trough.

On the other hand, the rental market also became extraordinarily tight with tourism and overseas migration trickling back placing greater pressure on supply as demand increases.

Dr Nicola Powell, Domain's Chief of Research and Economics commented on the changing property market conditions:

“The past two years have been fascinating to watch in real estate.

After soaring price growth in 2021, it was inevitable that we would see an adjustment phase of the property cycle in 2022.

This is a reminder that homeowners or prospective buyers need to maintain an overall perspective.

History tells us that in the last 30 years the duration and steepness of an upswing are longer and greater than a downturn, supporting the idea that it’s not timing the market, it’s the time spent in the market that counts.”

Of course, in the current market, rising interest rates still remain a risk to the housing market, however, the eased pace of interest rate hikes from the Reserve Bank of Australia should help to shift the tone among consumers slightly.

Dr Powell further commented:

“With interest rates rising at the fastest rate since 1994 – the impact on Australia’s housing market has put pressure on consumers' ability to service a loan.

Many borrowers and potential home buyers had never experienced rate hikes of this magnitude and, justifiably, it has had a jolting impact on sentiment.

For many, thousands of dollars have been added to the annual cost of a home loan since rates began to rise which is challenging for many consumers to absorb.

The rapid increase in interest rates since May has also triggered a wave of refinancing as Australians on fixed-rate home loans start to revisit their finances.

We’ll see this continue into 2023 as more Australians see their fixed rate expire. Now that prospective buyers are used to the new interest rate environment, they will likely be forward planning buffers for further rate hikes and are more mindful of their lower borrowing capacity.”

2023 Property market trends to watch

What can we expect for 2023?

Domain highlighted 5 trends to watch out for in the coming year:

1. Downturns will be shorter and less severe

As we move to 2023, Domain’s report reminds buyers and sellers of the cyclical nature of the property market and that property should be viewed as a long-term investment.

With interest rates rising and property prices falling, it can understandably make homeowners feel uncertain about their property journey.

However, while property prices will continue to soften in 2023, it is unlikely they will erase all the growth seen during the pandemic boom.

2. Multi-speed property markets will create opportunities for upgraders

It is expected that a multi-speed market will become more apparent in 2023 with some areas falling faster while others will be more resilient.

Overall, entry-priced houses and units will hold firmer, particularly in the most expensive capital cities, Sydney and Melbourne.

This will be driven by the affordability barriers of purchasing, first-home incentives and deteriorating borrowing capacity steering demand to more affordable options.

This coupled with the houses at the premium price point seeing greater falls, will create opportunities for upgraders.

3. Interest rates aren’t the only factor affecting housing prices

The speed and scale that prices soften will depend on many factors, however, the depth of the downturn will be largely shaped by how high-interest rates go, and when and how quickly inflation eases.

But interest rates are not the only factor influencing housing prices.

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

Dr Powell explained:

“Initially, rate hikes were a huge shock to potential buyers in 2022 but now buyers have adjusted to this new norm and are more mindful of their lower borrowing capacity.

With the wave of fixed rate expiry in 2023, we will start to see the true impact of interest rate increases on consumer spending as more Australians tighten their belts to cover the step up in repayments over the last seven months.”

4. The return of international immigration will increase housing demand

With the opening of international borders in early 2022, the country’s major capitals welcomed back many skilled immigrants and overseas students.

As part of the budget, the Australian government has increased its quota for the permanent Migration Program to address the skills shortage gap which will essentially be the biggest immigration drive ever for Australia.

This influx of people arriving from overseas will add incredible demand to Australia’s housing market.

Initially, this will place a further strain on the rental market but continued rising rents will also make purchasing more attractive for strategic investors.

5. Buyers will be willing to pay for the right neighbourhood

In 2022, Domain’s analysis of keyword searches showed that lifestyle additions and location were high on wish lists, such as ‘pool’, ‘waterfront’, ‘beach’ and ‘view.’

It’s anticipated this will continue as many buyers are still willing to pay a price premium for the right neighbourhood and their home's liveability features.

Dr Powell adds:

“The global pandemic created one of the greatest lifestyle shifts Australians have experienced.

It emphasised the importance of the home and its surrounding community, as well as the ability to work, live and play within a short distance of where we reside.

Heading into the new year, we expect Australians to have their desire for more space, added security, the balance of life, the right amenities, education, sports facilities and green space on the top of their wish lists.”

About Brett Warren Brett Warren is National Director of Metropole Properties and uses his two decades of property investment experience to advise clients how to grow, protect and pass on their wealth through strategic property advice.