Throughout the year, the media has been reminding us about how rising interest rates are hammering our property markets, and commentators keep reminding us about the uncertainty of our economic future.
It’s easy to see all the risks and problems now, but five years from now, it’s likely we will look back and see lots of missed opportunities.
That’s why once a month, I catch up with leading economic commentator Pete Wargent for these Big Picture podcasts when we look at the macro factors affecting our economy and our property markets to help bring our years of perspective to you.
And that's what we plan to do again today, as we sum up what's happened to our property markets in 2022 and give you some ideas about what we think is ahead for 2023, so welcome to today’s show
If you would have asked me at the beginning of the year, I wouldn't have thought we would be talking about an inflation rate of 8%, 8 consecutive interest rate rises, a war with no end in sight overseas, and the lowest consumer confidence for decades, but here we are.
As I look back on 2022, I think it’s got to be one for the record books.
Firstly, with December’s 0.25% rate rise for 2022, interest rates have gone up by a total of 3% in a year.
We haven’t seen that sort of spike since 1994 when they went up by 2.75%.
Then inflation went to its highest point in 30 years this year, and supply chain and labour issues have caused home building costs to rise at their fastest pace since the introduction of the GST.
We’ve had historically significant population changes, with greater growth in the regions than our capital cities for the first time in four decades.
And it’s been one of the fastest property market corrections I’ve witnessed, with the silver lining being that it will probably be one of the shortest property downturns we’ll experience.
- The property slump began in Sydney and then Melbourne even before the interest rate rises and spread around the country.
- The more expensive markets have seen sharp declines, while the more affordable segments of the market so greater resilience to increases in interest rates
- Apartments held their values better than houses
- The pace of decline has been slowing since September
- Historically low vacancy rates around Australia for both houses and apartments
- Significant rental increases, about 10% nationwide, due to an undersupply of properties
- No end in sight – little new construction
- Increased interest in renovated properties because building became too hard.
- Several builders and developers went bust – fixed-price contracts
- The continuation of hybrid work/work from home
- Move back to the city from regional locations
- Apartments have held up well - affordability
- It’s likely inflation has peaked
- Inflation was initially driven by supply chain restrictions, but now there is some demand-driven inflation as we are spending more
- Economic Growth
- Central banks are hiking rates trying to take the heat out of the economy and, thereby inflation
- So far, growth is holding up in Australia, supported by strong consumer sentiment
- Latest GDP figures
- Despite this year’s steep rise in interest rates, Aussies keep spending, and this consumer cash splash continued driving robust growth in the national economy.
- Australia's economy, as measured by the Gross Domestic Product (GDP), rose 0.6 per cent in seasonally adjusted terms in the September quarter of 2022 and by 5.9 per cent through the year
4. Interest Rates
- With inflation peaking, the RBA may take a pause in February to see how their eight consecutive rate hikes have been working
- If inflation persists, we could have a further one or two rate rises
5. Global risks
- The war in Ukraine could turn worse
- China is struggling with its Covid Policy, and there are signs of political unrest
- Energy prices could keep rising, affecting inflation
Successive interest rate rises, surging inflation, low consumer sentiment, and deteriorating affordability drove a shift in Australia’s 2022 housing market performance.
Not all housing markets were uniformly impacted dash the more expensive markets tended to see sharp declines, while the low end of the market was more resilient.
However, the pace of decline is now slowing, and there are some indications the market may bottom out soon.
As we move into 2023, there continues to be a mix of headwinds and tailwinds for housing market performance.
- Metrics – can’t rely on just one
- Asking prices flat or rising
- Auction clearance rates held up well through Spring and into December
- Vendor metrics firm – days on market and discounting
- Most borrowers have factored in higher interest rates.
- The top of the interest rate cycle is close
- The RBA knows there is a lag
- Top of inflation cycle is close
- Yields are increasing
- Our strong population growth will underpin rental and capital growth
- unemployment levels remain at historic lows, which plays a role in serviceability, helping to keep a lid on mortgage arrears.
- Very low supply – supply/demand imbalance and no significant new supply until prices rise and developments are more financially feasible
- The big headwind – fixed-rate mortgages converting to higher variable rates
Links and Resources
Metropole’s Strategic Property Plan – to help both beginning and experienced investors
Get a bundle of free reports and eBooks – www.PodcastBonus.com.au
Some of our favourite quotes from the show:
“The higher end of the market, the more expensive segments, tend to lead the booms and lead the downturns.” – Michael Yardney
“There’s actually a lot of factors suggesting that we’re near the bottom of the property market, including, I think, confidence.” – Michael Yardney
“There’s a lot of things underpinning our markets at the moment that are going to put a floor under further property price falls.” – Michael Yardney
PLEASE LEAVE US A REVIEW
Reviews are hugely important to me because they help new people discover this podcast. If you enjoyed listening to this episode, please leave a review on iTunes - it's your way of passing the message forward to others and saying thank you to me. Here's how
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.