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Latest property price forecasts for 2022 revealed. What’s ahead in our housing markets in the next year or two? - featured image
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Latest property price forecasts for 2022 revealed. What’s ahead in our housing markets in the next year or two?

Property Market Forecast 2022

What's the outlook for the Australian property markets for the balance of 2022, and beyond?

This is a common question people are asking now that the housing market has transitioned from an upswing generally characterised by a strong and broad-based rise across the regions of Australia, to the adjustment phase of the property cycle that could be best described as multi-speed.

At one end of the spectrum are Australia’s two largest cities, Sydney and Melbourne are recording slightly falling housing values, while at the other is Brisbane and Adelaide, where the pace of growth continues to rise at double digit annualised growth.

We've moved into this next stage of the property cycle faster than some expected, pulled forward by an earlier and more aggressive interest rate tightening cycle due as the RBA's response to a surprisingly strong surge in inflation.

While much of this is due to offshore factors that can be expected to ease over time, the high starting point for inflation and tight labour market domestically means the RBA is going to move aggressively on interest rates – taking them from COVID 'emergency' lows to more 'normal' levels.

And this is cause many commentators to warn that we are going to have a housing market crash?

I don’t think so.

Housing Market

You see… Interest rates are only one of the many factors that affect home prices.

For a property market to "crash" there must be forced sellers and nobody on the other side of the transaction to purchase their properties meaning they have to give away their properties at very significant discounts.

Remember home sellers are also homebuyers – they have to live somewhere and the only reason that would be forced to sell and give up their home would be if they were not able to keep up their mortgage payments.

This happens when:

  1. Unemployed levels are high - today anybody who wants a job can get a job.
  2. Mortgage costs (interest rates) zoom up - despite rising interest rates, are only like you to get to where they were a couple of years ago before the pandemic borrowers could cope then.

Sure, what happens next to our property market will be partly shaped by the speed and extent of interest rate tightenings, but as you will read below there are still many positive factors underpinning our housing markets which means that the property crash which the Property Pessimists are predicting is unlikely to occur.

And we now from recent history that neither the banks, our governments or the RBA want to see a housing market crash and they'd rather support mortgage holders than take over their homes.

Change In Dwelling Values 30 June

Source: CoreLogic, July 1st 2022

The total value of Australia’s residential property market recently surged to $9.9 trillion after growing at the fastest annual pace on record in 2021.

Residential property prices rose 23.7% through 2021, meaning that the collective value of the wealth of property owners increased by $2 trillion in just one year alone!

Now I know some potential buyers are asking "Well, that's now over - will the property market crash in 2022?"

They have obviously been listening to those perma-bears who keep telling anyone who's prepared to listen that the property markets are going to crash, but they've made the same predictions year after year and have been wrong in the past and will be wrong again this time.

Australian housing market predictions

You've probably read those forecasts that property values will fall 10 to 15%.

In fact... Property Prices Will Fall 30% was a recent headline in the Australian Financial Review by a respected columnist, and here he was not talking about a specific segment of the market, but about "the Australian property market”.

Fact is.... a fall of this magnitude has never happened before.

Not during a recession of the 1990s, not during the global financial crisis and not during the period of credit squeeze in 2017-18.

And considering the current state of the economy, our financial health and property markets there's no credible reason to suggest a fall of this magnitude should happen now 

The last few years have shown us how hard it is to forecast property trends… but here goes - I'm going to share a number of property predictions for the balance of 2022 and beyond.

1. We will see a 2-speed market

We’re already seeing that property price growth is slowing in some areas and falling in others.

As you can see from the chart below we're experiencing a 2-speed property market.

But there are markets within markets – there is not one "Sydney property market" or one "Melbourne property market."

There are houses, apartments, townhouses and villa units located in the outer suburbs, middle ring suburbs, inner suburbs and in the CBD.

And they're all behaving differently.

2 Monthly Change

But overall, our markets have slowed down, in part due to falling consumer confidence (the RBA wants to slow down our enthusiasm in order to dampen inflation) and in a large part due to affordability issues.

In short, buyers need more money to buy a property…. but they aren’t able to borrow as much.

And the rising inflation and cost of living mean a deposit is harder to save.

It’s easy to see why we’re entering a downturn, isn’t it?

But wait, there's more.

A rise in new listings in Sydney and Melbourne has taken some pressure out of the market, while there has been a shift and rotation in spending from goods back to services on top of a decline in consumer and home buyer confidence thanks to concern about rising rates, inflation and the future of property values.

Listings 12 Month Change 04 July

2. Property prices will continue to rise…but at a slower pace…

While many factors affect property values, the main drivers of property price growth are consumer confidence, availabilty of credit, low-interest rates, economic growth and a favourable supply and demand ratio.

Australia’s low mortgage rates continue to underpin very strong growth in property prices throughout the country.

Chart My 5

As always, there are multiple real estate markets around Australia, but in general property values should increase throughout 2022, but at a much slower rate than last year.

There are several reasons for this, including:

  1. 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, with property values being 20- 30% higher than at the beginning of this cycle - and 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.
  2. The pent-up demand is waning: While many buyers delayed their home-buying plans over the last few years because of Covid, a significant volume already made the move. There are only so many buyers and sellers out there, so we can expect there will be fewer looking to buy in 2022.
  3. FOMO (Fear of Missing Out) has disappeared: Buyers are being more cautious and taking their time to make decisions.
    A stark contrast to last year when many took shortcuts to enter the market.

As I said, we’re in the downturn phase of the property cycle, and sure, the value of some properties may decrease in the coming year – some by as much as 10% - but that will only be in the short term.

Yet there are still some strong patches in the Melbourne and Sydney property market where A-grade homes and investment-grade properties are still selling well.

It’s a bit like having one hand in a bucket of hot water and another hand in a bucket of cold water and saying “on average I feel comfortable”.

However strategic investors are not phased by this stage of the cycle, they understand real estate is a long-term game and they’re more focussed on the long-term rise in values rather than short-term slumps.

Housing price growth is slowing and it's likely prices will fall a little by the end of the year as the RBA begins a rapid tightening cycle in order to quell the rise in inflation.

It's likely the cash rate will lift to 2.5% by mid-2023, while the market is expecting it to reach close to 3.25%. 

While fixed rates have already risen sharply, the steep increases in the cash rate will flow through to variable mortgage rates, lifting minimum repayments significantly and reducing borrowing power. 

On the other hand, the return of immigration, falling unemployment and rising wages as well as rising exports and a strong economy will be supportive factors.

Property Price2

3. …But not in all areas

Not all locations will continue growing strongly moving forward.

While affordability constraints will limit property price growth in Sydney and Melbourne, the smaller capital cities are still likely to perform strongly.

But more than that within the city capital growth will be fragmented - I can see properties located in the inner and middle-ring suburbs, particularly 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, affordability is now becoming an issue as the locals have had minimum little wage growth during the time when property prices have boomed.

In these locations, the residents don’t have more money in their pay packet to pay the higher prices the properties are now achieving.

More than that, Covid19 has adversely affected low-income earners to a greater extent than middle and high-income earners who are likely to recover their income back to pre-pandemic levels more quickly, while many have not been hit at all.

Another trend that is emerging is the top end (luxury end) of the property markets is driving the market weakness.

Melbourne and Sydney property market

Brisbane and Perth property market

4. Property demand from home buyers will continue to be strong

Last year when home prices surged around Australia the media kept reminding us we were in a property boom.

The result was that emotions ran high and FOMO was a common theme around Australia’s property markets.

Now that overall growth in our property markets has slowed as we discussed above buyers are becoming more selective.

Yet there are still more buyers in the market for A-grade homes and investment-grade properties than there are properties for sale and this will underpin values of this type of property moving forward.

Sure some of the discretionary buyers are now out of the market, but people are still getting married, others are getting divorced and some are having babies and they usually require new homes, so our property markets are going to keep on keeping on.

5. Investors will keep entering the property market…

As rents rise and the share of first home buyers drop, strategic investors with a realistic long term focus will return to the market.

In fact they already are!

property investors return

6. …And they’ll squeeze out first home buyers

While there were many first-time buyers (FHBs) in the market in 2021, buoyed by the many incentives being offered to them, now demand from FHBs is fading as property investors re-enter the market and property values rise.

Of course over the last few years, investor lending has been low, but with historically low-interest rates and easing lending restrictions, investors are back with a vengeance.

Ivstor By State

7. Neighbourhood will become more important and people will pay a premium to be in the right neighbourhood

If Coronavirus taught us anything, it was the importance of living in the right type of property in the right neighbourhood.

Now that we have emerged from our Covid cocoons there is a flight to quality properties and an increased emphasis on liveability.

As their priorities change, some buyers will be willing to pay a little more for properties with “pandemic appeal” and a little more space and security, but it won’t be just the property itself that will need to meet these newly evolved needs – a “liveable” location will play a big part too.

In our new “Covid Normal” world, people will pay a premium for the ability to work, live and play within a 20-minute drive, bike ride or walk from home.

They will look for things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs all within 20-minutes reach.

Residents of these neighbourhoods have now come to appreciate the ability to be out and about on the street socialising, supporting local businesses, being involved with local schools, and enjoying local parks.

Many inner suburbs of Australia’s capital cities and parts of their middle suburbs already meet the 20-minute neighbourhood tests, but very few outer suburbs do because there is a lower developmental density, less diversity in its community, and less access to public transport.

And ‘neighbourhood’ is important for property investors too, and here’s why.

In short, it’s all to do with capital growth, and we all know capital growth is critical for investment success, or just to create more stored wealth in the value of your home.

Sure there is always the opportunity to add value through renovating your property or making a quick buck when buying well.

But these are one-off’s and won’t make a long-term difference if your property is not in the right location, because you can’t change or upgrade the location.

This is key because we know that 80% of a property’s performance is dependent on the location and its neighbourhood.

In fact, some locations have even outperformed others by 50-100% over the past decade.

And it’s likely that moving forward, thanks to the current environment, people will place a greater emphasis on neighbourhood and inner and middle-ring suburbs where more affluent occupants and tenants will be living.

These ‘liveable’ neighbourhoods with close amenities are where capital growth will outperform.

How do we identify these locations?

What makes some locations more desirable than others?

A lot has to do with the demographics – locations that are gentrifying and also locations that are lifestyle locations and destination locations that aspirational and affluent people want to live in will outperform.

It's well known that the rich do not like to travel and they are prepared to and can afford to pay for the privilege of living in lifestyle suburbs and locations with a high walk score – meaning they have easy access to everything they need.

So lifestyle and destination suburbs where there is a wide range of amenities within 20-minute walk or drive are likely to outperform in the future.

Hence why, as discussed above, these areas will fetch a premium.

At the same time, many of these suburbs will be undergoing gentrification - these will be suburbs where incomes are growing, which therefore increases people’s ability to afford, and pay higher prices, for the property.

8. Rent prices will increase strongly

Australia is experiencing a rental crisis.

Increased rental demand at a time of very low vacancy rates will see rentals continue to rise throughout 2022.

Then when our international borders reopen this will further increase the demand for rental housing.

If you think about it...when people initially move to a country or region, most rent first.

In addition, when foreign students return we'll see increased pressure on apartment rents close to education facilities and in our CBDs.

Yet despite the lack of immigration over the last few years, just look at how rentals rose - especially for houses.

Annual Change In Rents Houses 30 June

And as rising house rentals will create affordability issues for many tenants, apartment rentals will also increase in 2022.

Annual Change In Rents Units 30 June

9. Migration will resume

Freed from the constraints of needing to travel to a CBD office each day, and sick and tired of being locked down in our southern states, many Aussies migrated northwards to south-east Queensland last year.

And now that Australia’s internal borders have opened up it's likely that the northern migration will continue into 2022 driven by Queensland’s more affordable housing and perceived lifestyle benefit.

This, in addition to employment growth, long-term benefits of hosting the Olympics and the extra infrastructure building, means this part of Australia is looking particularly positive.

Not only this but overseas migration has also resumed, putting extra pressure on our housing markets, particularly in inner-city areas and near student campuses.

10. The property cycle will be dominated by upgraders

The current property and economic environment, plus the scars left on many of us after a year of Covid-related lockdowns have meant that Aussies are looking to upgrade their lifestyle, and this is only something we’re going to see more of in the coming years

In fact, there are four key types of ‘upgraders’ we’re likely to see more from during this property cycle.

  1. Tenants upgrading to better rentals: Many tenants are no longer happy to live in small dingy apartments and with an oversupply of rental units available in many areas, they are taking the opportunity to upgrade their accommodation.

Other tenants who have managed to save a deposit are taking advantage of many of the many incentives available and are becoming first home buyers.

2. Homeowners upgrading to larger, better, homes: With interest rates still relatively low many existing homeowners are upgrading their accommodation to larger homes in better neighbourhoods. 

Renovation

In fact, a recent survey suggested that one in three homeowners are looking to sell their homes in the next 5 years.

3. Homeowners looking for a sea- or tree-change: And while small group homeowners are upgrading their lifestyle and moving out of the big smoke to regional Australia, more Aussies are looking to upgrade their lifestyle by moving to a better neighbourhood. 

As mentioned above, they love the thought that most of the things needed for a good life are just around the corner.

4. Baby boomers downgrading: Many Baby Boomers are looking to upgrade their accommodation by moving out of their old, tired family homes into large family-friendly apartments or townhouses.

But they’re not looking for a sea change or tree change, they’re keen to live in “20-minute” neighbourhoods close to their family and friends.

11. Our economy and employment will remain robust

Sure the RBA wants to slow down our spending a little to bring down inflation, but despite this our economy will keep growing (albeit a little slower) and the unemployment rate will remain low as many new jobs will be created as our economy grows.

So, what's ahead for our economy?

Despite all its challenges, the Australian economy will continue to perform well and is unlikely to fall into recession.

In its recent Statement of Monetary Policy the RBA explained...

A strong expansion in the Australian economy is underway.
This is expected to continue over the forecast period, despite the slowdown in global growth.
The domestic outlook is supported by the substantial boost to national income from high commodity prices and growth in private consumption and investment.

The following 2 charts are the RBA's forecasts for:

  • economic growth for the next few year  - our economy will remain the envy of many other countries
  • unemployment - they are still expecting strong jobs growth.

 

 

Rba Gdp Forecast Rba Unemployment Forecast

 

Inflation and interest rate outlook

The RBA has recently warned that inflation in Australia could rise to 7% by the end of 2022 before slowing falling.

However they expect it will be quite some time before inflation remains in their preferred range of 2-3%

The rapidly changing inflation and interest rate situation has impacted the outlook for Australia's housing markets, pulling forward and steepening the forecast price slowdown.

Most economists expect the RBA to lift the cash rate to 2.55% by May 2023, a much earlier and more aggressive tightening than envisaged at the beginning of the year.

This has caused some concerns regarding mortgage stress leading the regular band of ‘negative nellies’ to say this will lead to forced sales and driving down our property market.

However I believe this is unlikely for a number of reasons:

  • Interest rates will only end up where they were 2-3 years ago and we weren't troubled by mortgage stress then.
  • The banks have been conservative and anyone who borrowed in the last few years had the serviceability checked based on the presumption that it would rise at least 2% if not 3%.
  • Aussies have built up a significant war chest of savings in their offset accounts and more than half of mortgage holders have paid their mortgage many months in advance.
  • Half Australian home owners have no debt at all, while most people who bought a property in the last couple of years already have significant equity, investors are getting higher rent while homeowners are getting higher wages.
  • Our economy is growing strongly and anyone who wants a job can get a job – inflation and high interest rates are a concern when unemployment creeps up and people can't pay their mortgages, but that's not the case at present.
  • The Australian residential real estate market is too big to fail - neither the banks want property values to drop – it's not really in their interest.

Inflation

Here's what the banks say about property prices in 2022

You may remember that at the beginning of the Covid pandemic, economists from Australia's 4 big banks predicted our property markets would crash with house prices plummeting anywhere between 10 and 15%.

Of course, they were wrong.

They have once again amended their forecasts with our 4 Big Banks suggesting that interest rates will rise faster than initially forecast cooling our property market throughout 2022 and then property values will fall in 2023.

This is what's been happening to Australian house prices over the last year…

Index Results As At 30 June 2022

So how long will this cycle continue?

Remember the current upturn phase of the property cycle really only commenced in October 2020.

Normally the upturn stage of the property cycle lasts a number of years and is followed by a shorter boom phase which is eventually cut short by the RBA raising interest rates or by APRA introducing macroprudential controls to dampen the exuberance of property investors and home buyers.

However, this time around we have experienced an unprecedented rate of growth seeing our property markets perform even more strongly than anyone ever expected, with the rates of house price growth at levels not seen for a number of decades.

While a lot has been said about the +20% increase in property values many locations have enjoyed so far this cycle, it must be remembered that the last peak for our property markets was in 2017 and in many locations housing prices remain stagnant over a subsequent couple of years which means that average price growth was unexceptional over the long term, averaging out at around 5 per cent per annum over the last 5 years.

Now I know some people are worried and wondering: "Are the Australian property markets going to crash in 2022 0r 2023?"

They hear the perpetual property pessimists who've been chasing headlines and telling everyone who's prepared to listen that the Australian property markets are going to crash and housing values could drop up to 20% - but just look at the terrible track records - they've been predicting this every year for the last decade and they've been wrong.

I've recently written a detailed article outlining 10 Reasons Why Our Property Markets Won't Crash - you can read it here.

What is really holding back the market currently is affordability with house price growth getting well ahead of wage growth.

Yet our housing markets just keep bounding along…

Rolling 3 Month Change In Dwelling Values Combined Capitals 30 June

What drives Australian property prices?

As we discussed earlier, there isn’t ‘one’ Australian property market.

In fact, there isn’t even just one Melbourne, Sydney, Brisbane etc. property market either.

Every market in every area is segmented, and prices in some of these segments will outperform going forwards, while others will not.

But forecasting Australian house prices isn’t as simple as it might seem.

In the medium term, property values will be linked to the extent that our economic recovery affects income, employment, borrowing capacity, and credit availability.

Generally, this boils down to two basic economic concepts: Supply and demand, and inflation.

However, there is a sub-component of demand, called “capacity-to-pay”, which is often overlooked.

Understanding how these concepts work together to affect real estate is crucial to one’s belief or doubt about whether real estate values will rise.

In a free-market economy, prices of any commodity will tend to drop when supply is high and demand is low.

In other words, when there is more than enough of something, it is said to be a “buyer’s market” because sellers must compete, typically by lowering the price, to attract a buyer.

Conversely, when supply is low and demand is high, prices will tend to rise as buyers bid up pricing to compete for the limited supply.  This is called a “seller’s market”.

Let’s look at it this way….

  • With regard to supply…. they aren’t making any more real estate in the most desirable areas and by this, I’m talking about the dirt, not the buildings.
  • With regards to demand, Australia has a business plan to increase the population to 40,000,000 people in the next 30 years. 

Now we’ve covered the two basic economic concepts, let's take a look at the 8 key underlying fundamentals supporting our property markets in the medium-long term.

1. Population growth

For the last few decades, continued strong population growth has been a key driver supporting our property markets.

Australia’s population was growing by around 360,000 people per annum, meaning we needed to build around 170,000-180,000 new dwellings each year to accommodate all the new households.

Over the last two years, population growth stagnated, but this should increase again now that the gates have been opened and over 200,000 overseas immigrants will be allowed to come to our shores.

Of course, Australia is likely to be seen as one of the safe havens in the world moving forward.

At the same time, the number of new properties listed for sale in our capital cities is falling creating an imbalance of supply and demand.

Components Of Annual Population Change

2. Housing supply

Housing supply clearly has a significant influence over house prices: an undersupply puts pressure on prices to rise while an oversupply would do the opposite.

The oversupply of dwellings previously experienced in many Australian locations has now disappeared and there are very few new large development projects on the drawing board.

Considering how long it takes to build new estates or large apartment complexes, we’re going to experience an undersupply of well-located properties in our capital cities in the next year or two.

3. House size trends have changed

Also on the topic of supply, Australian households have aged and pretty soon millennials will make up one-third of the property market and their household trend, in general, is for smaller sized properties.

More one and two person households mean that moving forward, we will need more dwellings for the same number of people.

4. Interest rates

A low-interest-rate environment makes it possible for buyers to borrow more money, and more cheaply.

This in turn, as we saw over the past couple of years, creates a headwind for buyers.

More buyers means supply struggles to catch up, and an imbalance occurs.

In the current market, interest rates are rising quickly, and are expected to hike further throughout the remainder of the year. 

But they are still comparatively low.

The prevailing low-interest-rate environment, therefore, is making it easier to own a home, either as an owner-occupier or investor.

5. Renters

Increased rental demand at a time of very low vacancy rates will see rentals continue to rise throughout 2022. 

And this will put pressure on housing supply.

Soon 40% of our population will be renters, partly because of affordability issues but also because of lifestyle choices.

The government isn’t providing accommodation for these people. That’s up to you and me as property investors.

On the other hand, the pressurised rental market will force some would-be-buyers to get into the property market sooner than planned.

Rental Market

6. Investors

Investors help drive market sentiment and trends which has a knock-on effect for property prices.

In the current market, investors are back with a vengeance.

More investors means more buyers, which means more demand versus the supply of properties available.

As with all supply and demand dynamics, this puts prices in a pressure cooker.

7. The economy

Another key factor that affects the value of the property market is the overall health of the economy. 

This is generally measured by economic indicators such as the gross domestic product (GDP), employment data, manufacturing activity, the prices of goods, etc. 

Broadly speaking, when the economy is sluggish, so is property and when the economy is strong and confidence is high, this is reflected in property prices.

8. Availability of debt

It goes without saying that the availability of debt directly affects the trajectory of property prices.

At the moment, Australia’s banking system is strong, stable, and sound.

Even though a few home buyers have overcommitted themselves financially, there should be no real concern about household debt because, in general, it is in the hands of those who can afford it.

Price Growth

Australian House Price Predictions

I could boldly claim a 20% house price increase here, or a 5% price drop there… but we all know that’s not how our property markets work.

You see, we already know that our property markets are so segmented (depending on location, property type, potential etc.) so it is impossible to put an accurate figure on where I think our house prices will go in 2022 and beyond.

But what I will say is this.

Price growth might be slowing but there is no ‘crash’ ahead.

Here’s why:

  1. The average Australian is wealthier than ever
  2. Mortgage stress is low (in fact, half of homeowners have no mortgage at all)
  3. Interest rates have risen, but they’re still comparatively low
  4. Banks are conservate with stress testing (which again means chance of default is low)
  5. There is still a housing supply shortage
  6. Migration is about to surge - taking demand with it
  7. Australia’s economy is strong and has recovered well from the slowdown endured through the height of the Covid-19 pandemic.

So, you could argue that our property markets are as strong as ever.

Moving forward, property values should increase throughout 2022 and beyond, but at a much slower rate of growth than 2021.

Sydney House Price Forecast

Sydney’s housing market conditions have continued to ease, with housing values down 0.5% over the last quarter.

A year ago, Sydney housing values were rising at a quarterly pace of 9.3%.

The weaker conditions can also be seen in less transactional activity, with our estimates of home sales down almost 40% compared with the March quarter a year ago, albeit with some likely disruption from the latest wave of Covid and weather-related events on the housing market’s activity.

The number of homes available for sale has been trending higher as demand slows and the flow of new listings tracks at above-average levels.

At the end of March, there were 7.5% more homes available for sale than at the same time a year ago, providing buyers with more choice and less urgency in their decision-making.

However, more investors are getting into the Sydney market now recognising that while there are no bargains to be found, in 12 months' time the properties they purchased today will look like a bargain.

Housing Cycle Sydney May 2022

Westpac Nsw Housing Pulse

Melbourne House Price Forecast

Melbourne housing values recorded a 0.1% fall, marking it the fourth month in a row where housing values have been flat or have fallen.

The weaker conditions come as advertised stock levels rise to 8% above the previous five-year average in March and estimated sales activity reduces to around 9% below the five-year average.

With higher inventory levels and less competition, buyers are gradually getting some leverage back.

Homes are taking about a week longer to sell compared with last year, vendor discounting rates have picked up a little and auction clearance rates have faded to be consistently below the 70% mark.

At Metropole Melbourne we’re finding that strategic investors and homebuyers are still actively looking to upgrade, picking the eyes out of the market.

While overall Melbourne property values are likely to increase strongly again in 2022, like all our capital cities there is not one Melbourne property market, and A-grade homes and investment-grade properties are likely to outperform.

Housing Cycles Melbourne May 2022

Westpac Vic Housing Pulse

Brisbane House Price Forecast

Brisbane remains Australia’s strongest capital city housing market, with housing values rising 2% over the past month to be almost 30% higher over the past year.

Housing values rose 2% over the past month - in dollar terms, nearly $15,000 was added to the Brisbane median value over the month of March.

And even though growth is slowing in other parts of Australia, Brisbane's housing market is continuing to perform strongly this year.

Sure it recently suffered from devastating floods, but history shows the resilience of the Brisbane property market which bounces back quickly.

It seems the floods acted as a circuit breaker for the white-hot Brisbane housing market, but our on the ground experience at Metropole Brisbane is that the market is still going gangbusters.

There just are not enough new properties coming onto the market for sale to satisfy the many home buyers and investors wanting to buy in Brisbane.

Advertised inventory levels remain extremely tight across Brisbane, with total stock levels holding 42% below the previous five-year average.

At the same time, home sales through the March quarter were estimated to be 38% above the five-year average.

Every sub-region of Brisbane has seen housing values rise by more than 20% over the past twelve months, however, it is the coastal markets of South East Queensland where growth has led the state, with housing values surging 32% higher over the year across the Sunshine Coast and 30% higher on the Gold Coast.

The long term outlook for Brisbane's housing markets is also looking positive, with a strong demographic trend fuelled by interstate migration, a large infrastructure budget, and a burgeoning level of excitement following the announcement that Brisbane would host the 2032 Olympic games.

Similarly, popular areas of the Gold Coast and Sunshine Coast have enjoyed strong demand considering the increased flexibility of being able to work from home and commuting to the big smoke less frequently.

At the same time, property investor activity has been strong, particularly for houses, not only coming from locals but from interstate investors who see strong upside in Brisbane property prices as well as favourable rental returns.

However, there is not one Queensland property market, nor one southeast Queensland property market, and different locations are performing differently and are likely to continue to do so.

Houses remain a firm favourite of prospective home hunters, with demand rising post-lockdown and it remains significantly elevated compared to last year.

However, apartment demand has been sliding and, in general, apartments in Queensland are a higher risk investment than houses, particularly due to a high supply of apartments that are unsuitable for families or owner-occupiers.

In summary

Brisbane is likely to be one of the best performing property markets over the next few years, but while some locations in Brisbane have strong growth potential, the right properties in these locations will make great long-term investments, and certain submarkets should be avoided like the plague.

Our Metropole Brisbane team has noticed a significant increase in local consumer confidence with many more homebuyers and investors showing interest in a property.

At the same time we are getting more enquiries from interstate investors there we have for many, many years.

Housing Cycles Brisbane May 2022

Westpac Qld Housing Pulse

Canberra House Price Forecasts

Canberra’s property market has been a “quiet achiever” with median house prices recording the biggest jump in prices across all of Australia’s capital cities, at a huge 25.5% in just one year or 3.7% over the quarter, to a new median of $1.015 million according to Domain's House Price Report.

That means that prices soared by almost $1,054 a day over the June quarter to give a total rise of $96,000.

This is the steepest price acceleration in almost three decades, the Domain report explained.

Median house prices in the inner north, inner south, and Woden Valley are now all above seven digits.

But unit price growth has been more restrained as the development boom of recent years contains prices, although they are edging closer to a record high, up a more modest $18,000 (or 3.6%) over the June quarter to $504,217.

Interestingly, since the pandemic, Canberra house prices have risen a huge 30.9% and unit prices 9.4%, which is the highest rate of growth across all of Australia’s cities.

Housing Cycles Canberra May 2022

Westpac Act Housing Pulse

Perth House Price Forecast

Perth's housing market has caught a second wind, with the rate of growth in housing values running counter-cyclical to the other state capitals.

Momentum has been building since the rate of growth moved through a recent low at the end of last year when the quarterly rate of growth virtually flatlined at 0.4%.

The trend rate of growth has since lifted to 2.4% over the most recent three months and the monthly growth rate of 1.1% was at its highest level since May last year.

As the year progresses I wouldn’t be surprised to see an outflow of residents from Western Australia.

Perth Preview

Perth’s isolation and economic over-reliance on the mining industry mean many potential home buyers would look at moving away to further their careers.

Gross rental yields in Perth are the highest for all capital cities at 4.2% for houses and 5.5% for units.

But the attractive property prices in Western Australia do not mean that investors should jump into the Perth property market – there are better opportunities in other parts of Australia.

The problem is the Western Australian economy is too dependent on one industry – the mining industry and much of this is dependent on China, and this has a direct knock-on effect on Western Australian house prices.

Without structural changes to the WA economy, it is unlikely to be able to deliver the significant number of higher-paying jobs and the substantial increase in population growth required to keep driving strong housing price growth in the medium to long term.

Housing Cycles Pert May 2022

Westpac Wa Housing Pulse

Hobart House Price Forecast

Hobart was the darling of speculative property investors and the best-performing property market in 2017-8, and while dwelling values reached a record high in February 2020, its boom was interrupted by Covid-19.

Hobart property values are moving up again with values up to new record levels of 27.7% over the past year.

Housing Cycles Hobart May 2022

Westpac Tas Housing Pulse

Adelaide House Price Forecast

Adelaide housing values rose another 1.9% in March, taking the median dwelling value to approximately $603,000.

The monthly rise was the second-highest gain of any capital city, after Brisbane.

One of the key factors pushing up prices is the ongoing shortage of advertised supply.

Total advertised listings are more than 40% below the previous five-year average, while total sales were estimated to be 53% above the previous five-year average through the first quarter of the year.

Part of the attractiveness of Adelaide is the relatively low housing prices.

With a median house value of $740,000 lower relative to Sydney and $340,000 lower than Melbourne.

Housing Cycles Adelaide May 2022

Westpac Sa Housing Pulse

What about affordability?

With property values rising by more than 20% in most locations around Australia last year, affordability is starting to bite, particularly in lower socio-economic areas and in our two big capital cities.

But Australian properties have never been cheap - and they never have been if you want to live in great locations in any major world-class city.

Yet now first home buyers are starting to feel the pinch due to the impact of high and rising home prices.

The latest results for the February quarter from the My Housing Market First Home Buyer Home Loan Affordability Index however reveal a slight improvement in national affordability.

The My Housing Market First Home Buyer Home Loan Affordability Index measures the proportion of the average income required for the average first home buyer home loan repayment and is derived from ABS statistics.

The higher the Index value the less affordable first home buyer home loan repayments.

The national First Home Buyer Home Loan Affordability Index fell marginally by 0.2% over the February quarter but remained 10.0% higher than recorded over the February quarter of 2021.

FHB

Long-term prospects for Australian property markets (2025-2030)

Currently, there are about 25.5 million Australians and in early 2021 the Government released the Intergenerational Report (IGR) to help Australia and the businesses plan for the next 40 years.

The IGR projects an Australian population of 38.8 million by 2060-61, and even though this is a little lower than previous projections – due to Covid slowing things down - this still means Australia’s population is projected to grow faster than most other developed countries.

Despite the reduction of the projected population, these trends are truly monumental.

If you think about it, it’s taken Australia well over 200 years since European settlement to reach a population of 25.5 million people today.

But in the next 40 years, our population will increase by around 13.3 million people.

In other words, it will increase by over 50%!

To make this worse, currently, there are 2.5 people in each household, but the IGR forecasts the average number of people in each household will shrink a little moving forward, meaning we are going to require about a third more real estate than we currently have.

To deal with the projected population growth between now and 2061 it’s likely we’re going to require one new property built for every two properties that currently exist!

Housing Market

All this means our way of living is going to change considerably and town planners will struggle to cope with this growth.

So when we think about the real estate forecast for the next five years in Australia, we have to think about how population growth will impact property investment choices.

And how strategic, knowledgeable investors will be well-placed to capitalise on the changing trends.

What we predict for Australia’s property market is that there will be many more high-rise towers of apartments, not just in the CBD but in our middle-ring suburbs.

In fact, we are already starting to see this, particularly in Melbourne and Sydney. 

And we also expect there will be lots more medium-density housing – in particular townhouses will be a popular way to live with modern large accommodation on more compact blocks of land.

Great, so what are the predicted house prices in 2030 Australia?

It would be foolish to try to forecast property prices moving forward because no one really knows what’s going to happen to inflation and interest rates.

But what we can see is that as more of us want to live in the large capital cities of Australia (and in particular in those locations close to the CBD or the water) where there will be more manatees, and the scarcity will only push the price of properties upwards.

Other questions I often get asked

When will housing prices drop in Australia?

This is a difficult question to answer because there is no ‘one’ property market, but there are multiple markets, each in their own stage of the property cycle.

Prices have already fallen 5 to 10% in the more expensive suburbs of Melbourne and Sydney, but these of the suburbs that lead to the significant price growth of the last couple of years and they are always the more volatile locations.

On the other hand there is still strong demand for "A grade" homes and investment grade properties in the middle ring suburbs of Melbourne and Sydney.

Brisbane and Adelaide are still exhibiting property price growth but at a slower rate

But, broadly speaking, what I expect for the future of property prices is that property price growth will slow throughout 2022, and beyond, as demand eases and regulators tighten lending requirements.

But they won’t crash.

Our economy is strong, migration will continue to increase, supply is low and our rental markets are under a lot of pressure.

These factors, combined with Australia’s robust economy and still-low interest rates will help to support our property market, and therefore property prices, for the future.

Is there a property bubble in Australia?

As we exit the ‘boom’ stage of the property cycle, some experts are warning that we could be in a property price bubble about to burst.

But, there’s a huge difference between property booms and price bubbles.

Bubbles invariably bust and when they do, housing prices end up much lower than where they started.

Property booms on the other hand, eventually run out of steam with an occasional small price correction followed by a prolonged period of little to no growth.

The issue is that they both look the same at the start.

So what’s the difference between a boom and bubble? 

It’s the type of buyers causing the growth.

Bubble

Buying demand from investors grows when prices rise and the more that they increase, the more that investors want to buy properties.

Whereas owner-occupier booms take place despite price growth and the more that prices rise, the more that demand slows down and then stops as prices become unaffordable.

Only investor led booms can become bubbles.

Investor led booms can become bubbles because investors don’t buy properties to live in, like owner-occupiers do.

Profit is their only consideration, and fear of loss their only concern.

This means that when price growth slows down or stops, investors start to put their properties on the market and try to sell.

When the number of properties for sale exceeds buyer demand, prices start to fall.

Panic starts to set in as more and more investors try to sell and because no one wants to buy, the bubble busts.

So, are we in a property bubble?

No.

Because the property boom seen in 2020-21 was a result of buyers taking advantage of extremely low interest rates and government incentives designed to keep our economy afloat amid a slowdown.

These were mainly owner-occupier buyers looking to upgrade their existing property or even those looking to jump on the property ladder sooner than planned to take advantage of the cheaper borrowing costs.

This was not an investor led speculative bubble.

Owner-occupier booms merely slow down and when they end prices don’t crash, because the purchased properties are now people’s homes.

When buyer demand comes to an end, there’s no motivation to sell.

Only those homeowners who really need to move for personal, family or business reasons will do so.

Property booms can occur anytime and anywhere that the demand for housing outpaces the supply, but only investor led booms can turn into bubbles (but usually don't).

Property Boom

Should I buy a house now or wait until 2023?

For some of you who are reading this right now, 2022 will absolutely be the worst possible time you could consider buying a property.

There is the spectre of higher interest rates, the continual media coverage predicting falling property values and an imminent property crash (which by the way is wrong) and geopolitical tensions around the world.

In fact for some people, moving forward with a real estate purchase this year would have the potential to cripple them financially, not just now but well into the future.

But the reality is that for investors, there is no ‘best’ or ‘worst’ time to buy property.

Here’s why…

Property investment is a process, not just an event.

So rather than just talking about going out and buying a property in 2022, or how to time the market to best purchase a property, the right time for you to consider investing is when you have all your ducks in a row and it suits your finances and your long term plans.

This means you have:

  • A strategic property plan, so you know where you're heading and what you need to do to achieve your financial goals,
  • Set up the right ownership structures to protect your assets and legally minimise your tax, 
  • A robust finance strategy with a rainy day buffer in place to buy you time

First Buyers

Is it worth buying a house in Australia?

House Price Growth 140 Years 1

In terms of capital growth, it might not have the speed of crypto or stocks, but in terms of delivering consistent results over time, Australia’s real estate is a spectacular investment.

Australia’s property market has consistently delivered results over time.

In fact, Australia’s property boom saw 5 Aussie cities placed in Knight Frank’s global top 20 for prime property price growth in 2022.

International property consultancy Knight Frank’s Prime Global Cities Index Q1 2022, crowned the Gold Coast as Australia’s top-ranking prime property market thanks to robust property price growth.

The city ranked in 7th place with a 19.3% annual hike in prime property prices.

Sydney came in close behind in 9th place with a 16% increase in prices while Brisbane and Perth came in 12th and 13th place with respective 11.3% and 11% increases.

Melbourne also made the top 20 list in 14th place with a 10.9% annual price growth.

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About Michael is a director of Metropole Property Strategists who help their clients grow, protect and pass on their wealth through independent, unbiased property advice and advocacy. He's once again been voted Australia's leading property investment adviser and one of Australia's 50 most influential Thought Leaders. His opinions are regularly featured in the media. Visit Metropole.com.au
110 comments

Whena. nation is "hugely in debt" as you say - inflation is another way out

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I think we'll enter a recession soon. The amount of money printed for the past two years can have a severe negative impact on economy in the long run. RBA has a solution for that but a nasty one! When a nation is hugely in debt how can they pay off t ...Read full version

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thanks for that detailed comment

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