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- RBA Rates to Rise in August? – Nonsense
- Property values will continue rising in 2022
- 2022 – the year of rising rents
- We’re in for a 2-tier property market moving forward
- More property investors will return to the market in 2022
- A flight to Quality
- Our economy will continue improving
- APRA will be watching the market carefully
- Most property predictions will be wrong
- The bottom line
We experienced a wild ride in property in 2021, didn’t we?
No one could have predicted the astonishing property price rises we enjoyed across the country.
So, what’s ahead for our housing markets in 2022?
Well, we’re only a short way into the year and already there are some wild predictions.
Just look at the news headlines and you’ll see both positive and negative forecasts appear in the same paper on the same day.
They vary from the Omicron variant of coronavirus causing our economy and property markets to crash, to a sharp decline in the national jobless rate will cause official interest rates to rise significantly sooner than the RBA planned to slow down a booming economy.
Watch this week’s Property Insiders chat with Australia’s leading housing economist Dr. Andrew Wilson to get his thoughts on the trends that will shape our property markets this year.
RBA Rates to Rise in August? – Nonsense
A sharp decline in the national jobless rate has predictably resulted in another wave of speculation suggesting the official interest rates may rise significantly sooner than the RBA’s current outlook.
According to the ABS, the national unemployment rate fell to 4.2% [seasonally adjusted] over December – the lowest rate is August 2008.
This low unemployment rate unsurprisingly fuelled predictions from the usual suspects of a surge in wages growth stroking higher inflation and resulting in the RBA interest rate increases this year.
Watch this week’s property inside a video is Dr. Andrew Wilson explains why the short-term outlook for the national labour market remains patchy, reflecting the self-imposed, voluntary lockdowns which are set to impact economic performance through January February, and perhaps beyond.
Reflecting current data, the latest RBA statements, and depressing covid outlook predictions, of official interest rate rises as soon as August is clearly non-sensical according to Dr. Wilson.
Property values will continue rising in 2022
While our property markets slowed down their extraordinary growth as the year ended, there is still significant momentum left and 2022 promises to be another good year, but the rate of acceleration in property prices will slow.
While the interplay of many factors affects property values, the main drivers of property price growth are consumer confidence, low-interest rates, the availability of credit, 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.
If history repeats itself, the Federal election which will be held in May will stall the property markets from the time it is announced.
And then life will get back to normal whatever the eventual election result will be.
2022 – the year of rising rents
Rents should also keep increasing in 2022 as vacancy rates tighten as there is currently a desperate shortage of good rental accommodation around Australia.
Adding to this, when we see our international borders open again and immigration is allowed to resume, we will see a surge in population that will put a strain on our housing markets.
We know the government is keen to attract skilled workers and students, so by sheer weight of numbers, Melbourne and Sydney will be the largest recipients of this population boom.
We’re in for a 2-tier property market moving forward
While most property markets around Australia have performed strongly so far this cycle (other than the inner city of high-rise apartment market), 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 now 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, this 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, which will lead to fewer people looking to buy in 2022.
- Our financial regulator APRA is intent on slowing our markets using macroprudential controls.
Together these factors will lead to a two-tier property market – in other words, not all locations will grow at the same rate moving forward.
I can see properties located in the more inner and middle-ring suburbs, particularly in the more affluent suburbs and in gentrifying locations, significantly outperforming cheaper properties in the outer suburbs.
While the outer suburban and more affordable end of the markets have performed strongly so far, as I explained affordability is now becoming an issue in these locations.
More than that, Covid19 has adversely affected low-income earners to a greater extent than middle and high-income earners who are have recovered their income back to pre-pandemic levels more quickly, while many have not been hit at all.
More property investors will return to the market in 2022
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 learns how well others have done by owning property.
They keep reading about the extraordinary price growth that those who are in property have enjoyed over the last year and that rents are rising as we are experiencing a shortage of rental accommodation.
However, if history repeats itself, and it most likely will, many of these investors will sell up over the next few years as they realise that property investment may be simple, but it’s not easy.
A flight to Quality
During the last few years, FOMO (fear of missing out) led inexperienced investors and homebuyers to purchase almost any property that their budget would allow, and they were fortunate as a rising tide lifted all ships.
But 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.
Our economy will continue improving
With the prolonged lockdowns in Australia’s two largest cities keeping people indoors and spending less, households have squirreled away an estimated $200 billion this year.
As life returns to normal much of this will be spent over the next few years in an economy-boosting wave of consumption.
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 their accommodation.
APRA will be watching the market carefully
Property investment is a game of finance with some houses thrown in the middle.
So far 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, but if the property markets continue growing too fast for their liking they are likely to introduce stricter measures.
Hopefully, they will have learned lessons from their past mistakes and remember that under their watch in 2017-8 the stricter bank lending criteria they instigated created a “credit squeeze” which didn’t just slow the markets down but stifled the property markets for quite some time.
Most property predictions will be wrong
The property pessimists will still be out there next year 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.
Clearly, many of us would like to forget the last few years, but that won’t be easy.
Let’s hope 2022 will be a year we are going to want to remember.
It will be interesting to look back at the end of the year and see how many of these trends have eventuated.
And with these forecasts of subdued growth, I can understand why some would-be investors may be questioning whether property still represents a smart investment.
On the other hand, strategic investors who have a long-term outlook will see the period of slower growth as a buying opportunity.
Sure, investors may not see annual double-digit capital growth in the short term; but the slower markets will give smart investors an opportunity to buy the type of property they’d have to compete more strongly for over the last few years when there were more buyers than sellers.
The type of property that will have them looking back in 10 years’ time saying “boy I bought that cheaply!”
READ MORE: 8 Property trends we can expect in 2022
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