Australian capital city dwelling prices will commence a recovery in 2023 as a result of a pause in the rise of interest rates we can expect to occur by no later than June 2023.
The cash rate is tipped to rise to no higher than 4.00% and from that point, stay on hold for the duration of the year.
The base case forecast in this year's Boom and Bust Report is for dwelling prices to rise between 3% to 7%.
Sydney is expected to lead the recovery.
This recovery in Sydney will be driven by the surge in underlying demand for residential property as a result of the rise in overseas arrivals, the return to the office, the existing shortage of rental accommodation, the new stamp duty/land tax changes and the expected ongoing strength of the Sydney economy.
As 2022 draws to a close, there have been signals that Sydney’s Eastern Suburbs has entered into this recovery, particularly for free-standing houses.
It is also noted, that on SQM’s leading indicators, there has been a moderate rise in the Auction clearance rate for Sydney, particularly for Sydney’s Eastern suburbs.
SQM’s forecast for Sydney is for dwelling prices to rise by five to nine per cent.
Melbourne is also forecast to enter into recovery with prices tipped to rise at a slower pace between 1% to 5% with the recovery being more mixed.
Perth is expected to rise between 4% to 8% on the back of strong rises in employment and positive interstate migration
No doubt it will be a very challenging year for the RBA to walk their tightrope and pull off a soft landing for the Australian economy.
However, contrary to current popular opinion, I believe they will manage to do just that.
The combination of previous lessons learnt by our Central Bank, a renewed focus on data plus our connection, not the Asian tiger economies will mean we likely see an economic slowdown but not a recessionary hard landing.
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That is not to see it won’t be a close call.
No question, there will be major uncertainties, for which we have also published scenarios for.
The key in our view is where the peak in the cash rate will be.
If the target rate stays below 4%, then it is unlikely we will have a flood of forced sales in the housing market.
There is of course a risk the RBA may need to go further.
If they do then the risks of a hard landing in the economy do substantially rise and thus, a hard landing in the housing market would also occur.
With regard to the rental market, SQM Research forecasts initial ongoing strong rises in rents for most capital cities.
However, SQM forecasts a peak in the capital city rental market later in 2023 as dwelling completions rise, slower housing formation and renters turn themselves into first-home buyers.
Asking rents are forecast to rise between 8% to 13%.
Source: SQM Research