This year, many are pondering if the property market will be stable, or will it be just as turbulent as last year?
Why house prices will rise again
SQM Research’s annual Housing Boom and Bust report showed Sydney prices are primed for growth over 2023 due to an increase in underlying demand for housing.
Factors that would drive up demand for Sydney real estate this year include a rise in overseas arrivals, a shortage of rental accommodation and the New South Wales government’s changes to stamp duty and land tax.
On SQM’s leading indicators, it’s noted that there has been a moderate rise in the auction clearance rate for Sydney and that parts of the Sydney housing market appear to already be on the road to recovery.
What will happen to the property market this year?
The base forecast by the property research group, which has a strong track record for predicting price changes, was for Sydney price growth to be 5 to 9% over 2023.
SQM’s “base case” forecast assumed the Reserve Bank of Australia eventually put a brake on interest rate rises, was somewhat successful in taming inflation, and unemployment remained low. Included in the assumptions was that interest rates peaked at no higher than 4%.
SQM Research director, Louis Christopher said:
“If the [cash rate] 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.”
SQM’s Housing Boom and Bust report included three additional scenarios for 2023 price changes based on interest rates, inflation and unemployment, among other factors:
In a worst-case scenario for homeowners – where interest rates climbed well above 4%, unemployment surged, and inflation surpassed 8% – property prices would drop 3-8%.
Another prediction, described as a “Goldilocks” scenario, would see the Reserve Bank cut interest rates in the second half of 2023 after successfully pulling down inflation. Were this to happen, property prices would rise 8-12%.
Should inflation calm down in the first half of 2023, only to accelerate again in the second half of the year, forcing the Reserve Bank to make bigger interest rate rises, the forecast was for 0-4% growth in Sydney property prices.
What will happen with interest rates?
The key question therefore remains – what will happen with the interest rates this year?
Property expert, Lloyd Edge noted that:
“There is speculation that interest rates will remain high for at least the first six months of 2023 while the central bank curbs inflation and that the RBA will bring the cash rate down to below 3% in 2024.”
“This is when we will see the current buyer’s market starting its pivot into a seller’s market, with high clearance rates, competitive auctions, and rising property prices. ”
“For people that have their finances in order and are ready to buy, the next few months is a good time to get better value for your money.”
Where will house prices end by the end of 2023?
Property will always move in cycles, but remember that property is a long-term gain, and you just need to ride out the waves for the long term. Periods of price growth last longer than periods of price decline that follows.
Buyers have now adjusted to this new norm and will be forward planning, pricing in a buffer for further rate hikes and more mindful of their lower borrowing capacity.
‘Strategic investors’ will also come into the market, who are not concerned about buying in a downturn, but are purchasing for tax purposes or for long-term hold.
It is also unlikely that the growth achieved during the pandemic upswing will be erased.
Domain’s chief of economics and research, Dr Nicola Powell expects the “trough” of the market to hit in 2023, followed by a price recovery, and says it will be a defining feature of the market by the end of this year.
Whatever this year holds, we look forward to helping you successfully navigate the property market over this next year.
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