Since the coronavirus pandemic hit our shores, Australia’s property market has grown at an unprecedented rate.
Closed borders, economic stimulus and low mortgage rates have driven demand for property sky high, with prices following suit.
But now things are changing.
Vaccination rates are high, lockdowns look set to be a thing of the past and businesses are calling their workers back into the office.
REA Executive manager of Economic Research Cameron Kusher recently highlighted highlights 6 potential changes to Australia’s residential property market that we should all watch out for in 2022.
The slowdown in the shift to regional Australia
The Covid-19 pandemic, lockdowns and ongoing restrictions have seen Australians re-evaluate what they want from their home.
The sea- or tree-change shift shows people have refocused their attention on what is around them, with buyers increasingly venturing out of their usual neighbourhoods and suburbs to regional Australia in search of a different lifestyle.
Because home is no longer just the place we rest, it has fast become the place we work, play and even self-isolate for a period of time.
And the shift has seen a surge in prices for properties in regional markets, particularly in those close to capital cities.
But Kusher says that while living and working in regional Australia has been a sensible lifestyle choice for many while people have been working from home, with restrictions easing and cities returning to life it is feasible that some of those people that moved regionally may return to the cities.
“Furthermore, two years into the pandemic and with restrictions having eased it seems likely that the shift away from cities won’t be as significant in 2022 than it was over the two years prior,” he said.
More macro-prudential controls
In October 2021, the Australian Prudential Regulation Authority reintroduced macroprudential controls on lending for the first time since removing all previous controls in May 2019.
Prior to these changes, borrowers were assessed for a mortgage based on their ability to repay a mortgage at an interest rate 2.5% above the offered interest rate and once these changes were introduced that buffer increased to 3%.
Kusher points out that while macroprudential policies don’t target property price growth, housing credit growth is a key consideration, and it continues to climb and is increasing at a rate well above household incomes.
“Given this, should credit growth continue to accelerate in 2022 it would seem likely that additional macroprudential controls could be introduced and the likely impact would be making it more difficult to access credit which in-turn likely slows sales activity and price growth,” Kusher said.
“There are a variety of measures that may be implemented but some of the more likely macroprudential tools we could see implemented in 2022 would be lending caps for higher risk loans, further increasing serviceability assessment criteria, restrictions on loan to deposit ratios or limits on debt-to-income ratios.
“It should be noted that nothing here is imminent to our knowledge and if price growth slows then any additional restrictions may not be required.”
Price rises strengthen in Brisbane, Adelaide and Hobart
Australia’s property prices increased at a record pace in 2021 with Domain’s latest quarterly house price report showing that the national median house price surged 25.7% and units by 7.7% year-on-year.
But while prices are up across the board, Australian property values in Sydney and Melbourne are seeing a slowdown in the monthly rate of growth. 
And this is a trend expected to carry into 2022, as affordability constraints rise, mortgage rates bottom out, and a higher number of new listings takes some pressure off market conditions.
On the other hand, property price rises in Brisbane, Adelaide and Hobart are showing little if any sign of a similar slowing with demand for properties in these markets also remaining robust, Kusher explained.
Similar to the concept that Australians are using new-found workplace flexibility to move away from city centres, that flexibility also allows residents to move to more affordable capital cities.
“Our expectation is that in 2022 housing demand will remain stronger in these smaller capital cities than in Sydney and Melbourne and subsequently they will also experience stronger price increases yet still retaining much lower prices than these other capital cities,” he said.
Inner-city rental markets rise from the ashes
As of the 21st of February 2022, the Australian Government opened the borders and welcomed double-vaccinated tourists and visa holders from around the world.
Eligible visa holders can come to Australia without a travel exemption or quarantining, and concessions are being granted to skilled visa holders in order to incentivise them to stay in the country for longer.
The latest overseas arrival data from the ABS shows total arrivals to Australia began rising sharply weeks earlier, as international students, permanent residents, and Australian citizens were welcomed back.
Overseas arrivals totalled 195,760 through December (up from 34,670 arrivals in December 2020) and provisional estimates suggest the number was higher still for January.
And the resurgence of migration is good news for our inner-city rental markets which were hit particularly hard by the Covid-19 pandemic and the consequential lockdowns which caused a shift away from CBD living to areas further away from the city.
With Australia’s domestic and international borders now largely reopening, universities returning to in-person lectures and people returning to offices throughout 2022, Kusher expects demand for inner-city rentals to continue to lift.
“CBDs and inner-city areas are expected to spring back to life in 2022 and sports and other forms of entertainment will also return bringing that vibrancy back to the inner-city which has been missing since the onset of the pandemic,” he said.
“With this reopening we expect the desire to live closer to the activity will also rebound driving a desire, particularly for students and younger professionals, to rent in this market once again.”
Overall demand will drop
Australia’s property market delivered a solid finish to what was an extremely strong year according to Proptrack’s January 2022 Housing Market Indicators Report.
We’ve started off another year with many active buyers, and views per listing hitting a record-high, though a surge in new listings into the end of 2021 has provided a lot more choice, releasing some of the heat from the market.
Indicators of buyer demand show property seekers remain motivated, but after what has been an exceptional year, buyer demand is beginning to moderate from the extreme levels witnessed in 2021.
And it is looking less and less likely that the lockdowns and restrictions seen over the past couple of years will return.
This means that instead of being stuck in isolation, people are going to start spending more money on entertainment, eating out and travel and dedicate less to their property.
This Kusher said, combined with the fact that many people already made a property move during the pandemic due to historic low-interest rates, means we can expect overall housing demand to drop in 2022 which in turn will contribute to slower price growth.
This should be welcomed in bringing what could be a more sustainable balance between buyers and sellers in the year ahead.
The RBA will hike interest rates
Lower mortgage rates have been a significant driver of the property increase in prices seen over the past couple of years.
But the likelihood of a cash rate increase in 2022 has increased significantly.
Since the onset of the pandemic the RBA has provided significant economic stimulus and support and have repeatedly stated that they don’t expect conditions for a rate increase will be met until 2024, Kusher explains.
And the banks suggest that property owners could face higher mortgage repayments as early as June as financial markets and economists warn a rapid run-up in inflation could force the Reserve Bank to lift official rates above 2% within the next 12 months.
Combined with growing concern about the upcoming federal election and rising cost-of-living, CBA said it believed the Reserve Bank would have to start increasing interest rates by the middle of the year.
Even a 1% rise could add hundreds of dollars a month in repayments on the average new mortgage, the bank warned.
And such a hike is worrying news for homeowners and investors.
While there was speculation of an RBA cash rate increase this year, however, the latest ABS data shows that “real wages” (the difference between wages and inflation) fell by an alarming 0.3% over the year to the December quarter – the first fall since March 2015 and second only to the record 0.5% fall recorded over September 2008 during the depths of the GFC.
So it’s unlikely that we’ll see an official interest rate rise this year.
However, in the past 4 months, CBA and Westpac have hiked interest rates 6 times, while NAB and ANZ have hiked 5 times.
And they’re warning that there are many more increases yet to come.
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