What’s ahead for property in 2022?
If you’re curious about what will be affecting our property markets in 2022, you will love today’s show, because Pete Wargent and I discuss 8 trends that will shape the property markets for 2022 and beyond.
We experienced a wild ride in property in 2021, didn't we, so what's ahead for 2022?
While our property markets are slowing down as the year ends, there is still significant momentum, so the main factors which will determine what happens to property next year will depend on what the RBA does to interest rates and if APRA tightens the screws further on lending.
But despite the best predictions, if history has taught me anything, it is that there will be an unexpected X factor coming out of the blue to undo the most seasoned property forecasts, either on the upside or the downside.
- Property values will continue to rise
While many factors affect property values, the main drivers of property price growth are consumer confidence, low-interest rates, economic growth, and a favourable supply and demand ratio.
As always, there are multiple real estate markets around Australia, but in general property values should increase throughout 2022, but at a slower rate of growth than 2021.
- We’re in for a 2-tier property market moving forward.
While most property markets around Australia have performed strongly so far this cycle, moving forward the rate of property price growth will slow and there are several reasons for this including:
- Affordability issues will constrain many buyers. The impetus of low interest rates allowing borrowers to pay more has worked its way through the system and with property values being 20- 30% higher than at the beginning of this cycle at a time when wages growth has been moderate at best and minimal in real terms for most Australians, means that the average home buyer won’t have more money in their pocket to pay more for their home.
- The pent-up demand is waning – While there are always people wanting to move house and many delayed their plans over the last few years because of Covid, there are only so many buyers and sellers out there and there will be fewer looking to buy in 2022.
- APRA – is intent on slowing our markets using macroprudential controls
This will lead to a two-tier property market - in other words, not all locations will continue growing strongly moving forward.
I can see properties located in the inner and middle-ring suburbs, particularly in gentrifying locations, significantly outperforming cheaper properties in the outer suburbs.
- Our economy will pick up
Households have squirreled away an estimated $200 billion this year, with the prolonged lockdowns in Australia’s two largest cities keeping people indoors and spending less.
Some of it will go to paying down debt and some will go into buying assets. We’re already seeing this in retail spending, and it’s been apparent in our property markets throughout the year as many homeowners upgraded.
- The “official” interest rate will remain unchanged
In my mind, the official RBA interest rate is likely to remain unchanged throughout 2022.
Australia's economy is still operating below its potential with economic growth and wages growth not strong enough to justify an interest rate increase.
- APRA is likely to tighten its macro-prudential measures
APRA has only really tapped its foot on the brake pedal; it hasn't really pushed down hard on the brake to slow our markets down so if the property markets continue growing too fast for their liking, they are likely to introduce stricter measures.
- A flight to quality
As the market matures, we will see a flight to quality with well-located A-class homes and investment-grade properties still selling well, but secondary properties having trouble finding buyers.
- More property investors return to the market
So far this property cycle has been driven by owner-occupiers and first home buyers, but now more and more investors are getting in the market.
Of course, this always happens after a period of strong housing price growth when a whole new generation of investors read how well others have done by owning property.
- Here’s something I can guarantee will happen in 2022
The property pessimists will still be out there telling us not to invest and that our property markets are going to crash. And as has been the case for the last few decades - they will be wrong.
If you want to outperform the average investor, if you want to develop financial freedom through property investing, then don’t start by selecting a location, or looking for that ideal property.
Things have to be done in the right order – and selecting the property comes right at the end of the process.
The property you will eventually buy will be the result of a sequence of questions you will need to ask and answer and a series of decisions you’ll need to make before you even start looking at locations.
So, my first recommendation to anyone asking where to invest is to sit with an independent property strategist to formulate their plan.
It’s just too difficult to do on your own and I’ve found most investors tend to be too emotionally involved to see their situation objectively.
The benefits of formulating such a plan include:
- It will help you define your financial goals.
- You’ll discover whether your goals are realistic, especially for your time frame.
- You’ll find out what you’ve done right and what you’ve done wrong along your financial journey so far and what you can do about it.
- You’ll be able to measure your progress towards your goals and whether your property portfolio is working for you, or if you’re working for it.
- Your plan will help you identify risks you hadn’t thought of.
- By following a documented plan, the real benefit is that you’ll be able to grow your wealth through your property portfolio faster and more safely than the average investor, without making any more costly mistakes along the way.
For example, I would not be investing in regional Australia or in the smaller capital cities.
There’s no doubt that some better performing regional locations or certain suburbs in our small capital city will outperform the poorer performing suburbs of our three big capital cities.
But when I suggest you should only consider investing in Australia’s big three capital cities, I’m also saying that it’s important to be very selective in choosing suburbs in these cities – investment grade suburbs that are likely to outperform.
I look for suburbs where wages (and therefore disposable income) are increasing above average.
These will either be:
- Discretionary Locations
These are the most expensive locations in our capital cities – the “established money” locations where most of the residents have lived for a long time and where many residents have paid off their home loans years ago.
- Aspirational Locations
These are the upper-middle-class areas and gentrifying locations of our big cities.
Avoid affordable suburbs
This is where most homeowners and many investors look because that’s where they can afford to buy.
Avoid last choice locations
In every city, there are suburbs where people live because they really have no choice.
But it’s not only the location that’s important.
While I believe that 80% of your property’s performance is related to its location, the other 20% or so is related to buying the right property in that location.
Even in the best suburbs, there are some properties I would avoid – they just don’t make good investments and others I would be keen to have in my portfolio.
Links and Resources:
Metropole’s Strategic Property Plan – to help both beginning and experienced investors
Join Michael’s Property Update private Facebook group by clicking here
Some of our favourite quotes from the show:
“Most investors get it wrong because they come in at the end of the cycle when they’ve heard in the media that auction clearance rates are high and property values are high and now rentals are going up.” – Michael Yardney
“Neither APRA nor the Reserve Bank want the property markets to crash.” – Michael Yardney
“In my mind, property investment is a high-growth, relatively low-yield investment.” – Michael Yardney
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