Property hunters have a prime opportunity to capitalise on the soft property market to position themselves for the expected recovery in the second half of the year, leading analysts say.
While much will depend on the extent to which inflation slows in coming months – and how that guides the Reserve Bank of Australia’s decision-making on interest rates – market watchers say there are signs the housing market is poised to bounce back.
“We believe that there will be a modest-to-moderate recovery, on the back of the fact we’ll have higher inflation, which in real terms will translate to higher rents, and a peaking in the [RBA’s] cash rate,” said SQM Research founder Louis Christopher.
Increasing rates of migration to Australia, a strong jobs market, and continued rental accommodation shortages will all be important factors in the resurgence, he said.
Terry Ryder, founder of hotspotting.com.au, says Australian property markets will abound with opportunities for buyers in 2023. “Right now, the equation for property investors seeking opportunities is particularly strong,” he said. “Consider these realities: Many markets are less competitive than before, with buyers having the upper hand in negotiations. Vacancies across Australia are the lowest ever recorded. Rents and yields are rising, providing good compensation for rising interest rates.
“That equation – competitive prices, high rental yields and good prospects for growth – represents opportunity for investors who buy strategically.”
SQM’s Louis Christopher forecasts a range of possible outcomes for the year ahead, with the base scenario being a situation where the cash rate, currently at 3.1 percent, peaks at no higher than four percent. In that case, he says, the property market nationwide could enjoy a seven percent jump, with Sydney leading the rebound, chalking up gains as high as nine percent, followed by Perth with up to eight percent.
Much of those gains would come from units, which Christopher predicts will outperform houses on the back of interest from first homebuyers. The trend would be particularly marked in NSW, where recent reforms now allow such buyers to forgo big upfront transfer duty fees in favour of smaller annual land tax payments: “That’s a meaningful saving. That combined with the tightness of the rental market will mean that we will see many renters turning themselves into first homebuyers in 2023.”
Arjun Paliwal, founder and head of research at investor buyers’ agency InvestorKit, agrees the rental crisis will play a decisive role in pushing more people toward ownership. “Although rental trends don’t necessarily cause sale prices to grow, they are important indicators, especially vacancy rates,” he said. “Low or lowering vacancy rates and rental growth could be a sign of a recovering economy, which would lead to higher housing demand.”
There are already signs the downturn in property prices is losing momentum, with declines across the country easing to minus 3.2 percent in the three months to January and just minus one percent for the month of January itself.
Although the housing value index has declined by 8.9 percent since its peak last April, that fall has to be understood in the context of the explosion in prices that preceded it, said CoreLogic’s Research Director Tim Lawless. “The national HVI was up a stunning 28.6 percent in the space of just 19 months,” he said. “Despite the recent sharp drop in values, every capital city and rest-of-state region is still recording home values above pre-pandemic levels.”
The most important factor in determining the market’s trajectory in the months ahead will be consumer confidence – an ingredient that is still lacking, Lawless said. It’s a claim echoed by Propertyology Head of Research Simon Pressley, who predicts that limited RBA rate rises will help to bolster that sentiment.
“Many of the fundamentals that drove the 20 percent capital growth in the 2021 calendar year are still here right now. The important missing link is buyer confidence,” Pressley said.
“But if global supply pressures ease back to acceptable levels in the first quarter of this year, as anticipated, I think it’s likely that interest rates will flatline from Easter through to the end of the year.
“All things considered, 2023 is likely to see a return to near-normal property market performance.”
