I’m going to be bold and start off with my first property prediction for 2023.
I believe our property markets are going to reset this year.
At some time this year our housing markets with reach a trough, which will herald the beginning of the next property cycle, as buyers and sellers return as they realize that there will be no more interest rate rises and that inflation is under control.
Now don't get me wrong - I'm not suggesting there's a property boom ahead.
But I am suggesting there's a window of opportunity for those who understand the forces behind the property market reset over 2023, and that's what Dr Andrew Wilson and I discuss in today's show.
What a remarkable year it’s been, especially so for our property markets.
This time last year, we were talking about experiencing record-low interest rates, and the Reserve Bank told us rates would not rise at least until 2024.
No one had a clue that there would be a war between Russia and Ukraine that would create international tensions and fuel international inflation.
Nobody had an idea that inflation in Australia would finish the year in the region of 8%.
The property markets did not unfold as most people expected, either on the upside – many were very optimistic at the beginning of 2022, or on the downside, as the property pessimists in the media predicted.
And now there is no shortage of so-called property experts making bold predictions about what's ahead for property in 2023.
But I believe we must understand the inherent limitations of forecasting, considering the huge impact that human behaviour has when it comes to our housing markets.
Then there’s the impact of external factors such as natural disasters, political events, and technological advancements can also have a significant impact on property and economic markets and are usually difficult to predict.
- Inflation will peak in the last quarter of 2022, but we won’t recognize this till the 1st or second quarter of 2023. However, we will be living with high inflation for several years as inflation won’t drop to the RBA target range of between 2% and 3% for at least another 2 years.
- Interest rates will peak in the first half of 2023 – there are probably 1 or 2 more increases until the RBA will find its “neutral level.”
- At some time in 2023, the housing markets with reach a trough, which will herald the beginning of the next property cycle, as buyers and sellers return as they realize that there will be no more interest rate rises.
- The housing markets will then enter the next stage of the property cycle, the stabilization stage, as more properties come on the market for sale
- Moving forward, the housing markets will be more fragmented as affordability will continue to constrain many buyers, but, as always, there will be people with higher incomes and multiple streams of income that will be able to afford to enter the property market
- 2023 will afford a great opportunity for home upgraders as the upper end of the market has experienced larger price declines than the middle tiers of the market.
- The rental crisis will worsen due to a lack of stock at a time when the return of immigration will place extra demand on the rental markets.
- Australia’s undersupply of properties won’t be resolved any time soon
- APRA will likely reduce its assessment rate – the serviceability buffer that currently requires banks to add a 3% buffer to the current interest rates when it assesses loan serviceability.
- Over the year, the media will change its rhetoric, and rather than worrying us about rising interest rates and higher inflation, they will try to scare us about a recession overseas
- Home buyers and investors will look back at the end of the year and regret they missed out
- Further rate rises
- Borrowers will move to more expensive variable rates when their fixed rate period expires
- Lack of supply of accommodation
- A surge in immigration to pre-pandemic levels
- Our relatively strong economy
- The low unemployment rate leads to job and financial security
- Consumer sentiment will change once inflation and rate rise peak
If you think about it 3 years ago, we had a national unemployment rate of around 5.3%. Today it is 3.4%.
We currently enjoy the lowest unemployment rate in 70 years.
At the same time, Australians are wealthier than they ever have been, with more equity in their homes than they ever had, and many have squirrelled away large amounts into offset accounts, or they have prepaid their mortgages.
Despite this, consumer confidence is at historic lows.
Over the last year, emotions have been clouding a lot of people’s investment decisions.
So, it's no surprise that there was a fear of buying early and a lack of consumer confidence and enthusiasm in markets.
I just want to confirm our thoughts that we are over the worst of interest rate rises as the Reserve Bank has now brought their rate up to a figure with a 3 in front of it.
And we believe that inflation is near its peak or may have already peaked, and it seems like more strategic property investors and home buyers have decided to get into the market ahead of the crowd and the reset of the property market that I mentioned in our podcast today.
Links and Resources
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Some of our favourite quotes from the show:
“Who would have thought that when the war in Ukraine started, we’d still be talking about it now? Who would have thought we’d be talking about another strain of coronavirus?” – Michael Yardney
“Australians are wealthier than they were three years ago, before COVID.” – Michael Yardney
“In my mind, lack of money is never really the problem.” – Michael Yardney
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