What’s in store for property in 2023: the year of opportunity
Australian property prices began to fall in mid-2022, and we expect further falls. Learn what happened with property prices and where we believe they’re headed.
Despite the gloom-and-doom forecasts in the early months of the pandemic, the Australian property market saw growth not witnessed for a generation. Now the market has stabilised from its frenetic pandemic highs and is transacting at a more normal pace.
In Sydney and Melbourne and high-value regional areas in particular, prices dropped in 2022, although they remain higher than they were in 2019. Note that nationally, prices would need to reduce by over 13% to return to those in March 2020 ‒ and we don’t believe that will happen.
In Darwin and Perth, prices continued to rise, albeit slower, bucking the trend seen on the east coast. Perth remains one of Australia’s most affordable capital cities by median house price.
12 months of real estate in review
Looking back over the past 12 months, we're pleased to share that home values are still the highest they’ve been for decades, although with declines in some capital cities. According to CoreLogic figures for the week ending 23 February, auction clearance rates were up in all capital cities, and month-on-month prices have stabilised or there is slight growth.
We must keep in mind that during the peak of the pandemic, national home prices were up 28.6%. And while we might not see that once-in-a-generation growth over the next 12 months, we should remember that boom periods last longer than bust periods (typically about 18 months). If we take the current ‘slump’ from May 2022, we should expect to climb out of it by the end of 2023.
Consumer sentiment
As of 31 January 2023, the ANZ-Roy Morgan Consumer Confidence index was sitting at 86.8 points, just 1.9 points below the 2022 weekly average of 88.7 points. While investors, lenders and home buyers factor in the higher interest rates, energy and food prices of recent months, in general, people remain optimistic.
HOMEOWNER UPDATE
The economy in 2023
Inflation continues to lead the Reserve Bank to raise interest rates. Although interest rates are historically low and we should expect at least two more interest rate rises this year, we should be mindful that low interest rates kept wages artificially low.
The services sector demanding real wage growth is pushing up the cost of services and so inflation. Highly leveraged households are more sensitive to interest rate hikes; however, on the back of wages and salary increases, those households could soon be bringing in extra dollars to offset higher mortgage repayments.
Property auctions in early 2023
Clearance rates rose in capital cities in January 2023, with combined capitals at 70.8%. Sydney achieved 78.0% and Melbourne sat at 67.7% while Brisbane (62.5%), Adelaide (68.7%), Perth (73.3%) and Canberra (65.6%) all show the gap from January 2022 is narrowing.
Property market movements in 2022
While spring is often noted as a peak selling season, figures bear out that autumn is the season that delivers the best sales results. So look for a bump in average sale prices from March onwards and a further bump in September/October as we near the end of the down cycle.
Real estate supply and demand
Another positive aspect is we’re seeing more properties for sale as sellers gain a better understanding of the current property market. And while property commentators note that sales activity is down slightly across Australia in 2022, Jason Pellegrino, CEO of Domain.com.au, believes that what we’re seeing is the housing market returning to normal conditions after the excesses of the pandemic.
PROPERTY INVESTOR UPDATE
Rental listings in 2023
As property investors take advantage of higher returns they can achieve in the short-term rental market, we’re seeing listings contract by 4.5% across Australia. In Sydney, rental listings are at their lowest level for five years, while Melbourne listings are at a three-year low. Nationally, the vacancy rate is, as of January 2023, sitting at 0.8%, meaning it’s difficult for renters to find suitable properties.
On the west coast of Australia, where the population is growing fastest, REIWA chief executive Cath Hart shared that rental listings hit a 12-year low at the end of September. While they improved in the last few months of 2022, they remain nearly 17 per cent lower than this time in 2021. The vacancy rate lifted slightly during the year before dropping back to 0.7 per cent, and the median weekly rent was $500 at the end of November, which was $60 higher than a year ago.
As building activity slowed or ground to a halt during the peak of the pandemic, the usual pipeline of new apartments is two years away from completion, leaving renters at a disadvantage. And while prestige regional areas like Bendigo, the Sunshine Coast, the Gold Coast and the Southern Highlands have seen property declines, continued low rental stock levels mean rentals in these areas continue to perform well.
Rents on the rise
According to a recent CoreLogic report, annual growth in rent values eased slightly in January 2023 to 10.1% after peaking in December 2022 at 10.2%. This growth has been driven partly by higher unit rents, which increased by 14-16% over the 12 months in Sydney, Melbourne and Brisbane. Gross yields in January 2023 rose to 3.9%, the highest rent yield since November 2019 and up from a low of 3.21% a year earlier.
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Article Author: Anjay Zazulak – Senior Buyer & Vendor Advocate Property Mavens
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