Property Market Update

What are the current figures and what are the experts forecasting next?

According to data from Core Logic, Australian housing values are down 5% over the 2022 year and down 8% from the peak in May 2022. Across the capital cities, most significant falls in value occurred in Sydney (-12%) and Melbourne (-8%). Whilst the declines are significant, it’s also worth noting that these declines are coming off the back of a substantial 2 year growth run that saw on average, Australian housing values increased by 28.6%.

Most analysts are predicting further falls to come with the majority expecting peak to trough falls in the range of 15 per cent to 20 per cent. The big four banks are also in this range however their forecasting has some nuanced differences:

ANZ

Peak-to-trough decline of 18 per cent across the capital cities, then prices expected to rebound 5 per cent in 2024 off the back of interest rate cuts. Prices in Sydney and Melbourne are expected to fall another 8 and 9 per cent this year, and larger drops are expected in smaller cities.

CBA

Peak-to-trough decline of 15 per cent across the capitals. Prices are expected to fall 18 per cent Sydney, 15 per cent in Melbourne, 18 per cent in Brisbane, 9 per cent in Adelaide and 7 per cent in Perth.

NAB

Prices to decline another 14 per cent this year, resulting in a peak-to-trough decline of about 18 per cent. Prices are forecasted to fall another 9.4 per cent in Sydney, 14.1 per cent in Melbourne and 9.4 per cent in Brisbane. A decline of about 14 per cent is expected for Perth.

Westpac

Peak-to trough decline of 16 per cent across the capitals, before prices rise 2 per cent next year. Values in Melbourne are expected to decline a further 10 per cent in 2023, while values in Sydney and Hobart are forecast to decline 8 per cent.

What is driving these figures and forecasts?

Inflation

Inflation is ultimately the driver for much of the current property trends. The most recent data out of the Australian Bureau of Statistics suggest that inflation rose 7.3 per cent over the year to November 2022. An increase from the October inflation of 6.9 per cent. The cause of such inflation is down to a number of factors including supply chain challenges, international conflicts, natural disasters and a world opening up post Covid-19. It’s also impacting much more than just property but once side effect of sustained higher inflation is an increase in the chances the Reserve Bank of Australia (RBA) will raise interest rates further in 2023.

Interest rates

Interest rates are one of the few levers the RBA is able to pull to keep the economy steady and as a result have been left with little choice but to raise the cash rate in an attempt to bring inflation back under control. The cash rate has risen from 0.1 per cent in April 2022 to its current 3.1 per cent, the fasted pace on record. As interest rates rise, cost of funding increases and as a result, borrowing capacity decreases putting downward pressure on house prices. Most analysts predict the market will continue to fall as long as interest rates keep rising.

What does it mean for homeowners?

If you aren’t looking to sell or buy, house price changes won’t mean too much to you in the short term and you can sit tight and ride the wave.

Where homeowners sitting tight will be effected most is in the increases to interest rates. Repayments on a $500,000 mortgage are likely to have increased by around $800 a month since April with potentially more rate rises around the corner. This has a large impact to discretionary spending highlighting the value in shopping around for the best available current rate.

For those looking to buy or move, with cost of funding increasing, you may find that cheaper prices for property does not necessarily mean they are more attainable making upgrading or depending on your loan size, even moving to a similar property more challenging.

What does it mean for renters?

Rents across the country and particularly in the cities have been increasing at some of the highest rates seen in a long time with advertised rent prices increasing by 6.7% nationally over the 2022 calendar year with Capital cities averaging 10% over the same period according to PropTrack data.

CPI increases in rent off the back of such high inflation numbers combined with a real shortage of supply have further hampered those looking to find a new dwelling. With many also looking to downsize rather incur the rental increases putting further strain on affordable housing. Many analysists seem to suggest this trend is set to continue for much of the year.

What does it mean for investors?

Rising rents and falling property prices means investors are experiencing greater yields on property than has been the case for some time. Unfortunately those with their investment properties heavily geared are likely seeing interest rates take up most of if not more than the increase in rent has provided.

As with homeowners, increasing cost of funding is likely to present similar challenges to those looking for a new investment property with investors able to purchase with less gearing likely to be best placed to reap the rewards of the current market.

Are you looking to enter the property market or would like to discuss your current properties? Please make sure you talk with us to gain clear insights and guidance. Our team at BLG Business Advisers are Wollongong Accountants who service right around Australia. There is no cost or commitment involved in an initial chat with us, which leaves you free to decide if we are the right fit for you.

Whatever you decide we wish you and your business every success!

*Please note that the above information is general advice only. We recommend you seek advice from a specialist relevant to your personal situation. This information is correct at the time of publishing and is subject to change*