After a stratospheric boom in prices, Australia’s property market rapidly applied the brakes in 2022.
Eight straight rate hikes, a cost of living crisis and a lack of real wage growth saw many buyers that were ready to take the plunge in 2021 retreat from ever-growing mortgage repayments and vendors with dollar signs in their eyes.
While many dubbed 2022’s value plunge – up to 20 per cent in some blue-chip suburbs – as a crash, for many it was a correction from the FOMO-fuelled historically low interest rates of 0.1 per cent.
But that now leaves many wondering what will happen in 2023, and it seems that the end may be in sight.
Dr Shane Oliver, chief economist at AMP Capital, is now forecasting prices to fall up to 20 per cent with the bottom of the market occurring in the September quarter.
“Australian home prices are likely to fall further as rate hikes continue to impact, resulting in a top to bottom fall of 15-20 per cent, but with prices expected to bottom around the September quarter, ahead of gains late in the year as the RBA moves toward rate cuts,” Oliver forecasts.
Unlisted commercial property and infrastructure are expected to see slower returns, reflecting the lagged impact of weaker share markets and higher bond yields (on valuations).
Many in the US are predicting the world’s largest economy will be teetering on the edge of a recession, but Oliver believes Australia will avoid the worst of it in domestic markets.
“It seems everyone is talking about recession for 2023, such that it’s a consensus call. The risk is very high (probably over 50 per cent in the US and Europe) and this will likely keep markets volatile given the threat to earnings,” he predicts.
“But it may not turn out to be as bad as feared.
“Australian growth is likely to slow but avoid recession, reflecting the less aggressive RBA, the pipeline of home building work yet to be completed and the strong business investment outlook.
Peter Munckton, chief economist at the Bank of Queensland Group, believes that Australia’s housing market is yet to see the real impact of the RBA’s eight-straight rate hikes.
He argues that the “lag” of these increases will continue to weigh on the property market through 2023, with only modest gains in some areas.
“While the economy may still do ok for the next couple of quarters a period of below-par economic growth thereafter is a near certainty. The impact of the rise in interest rates will increasingly be felt next year,” Munckton forecasts.
“Historically the maximum impact of higher interest rates has been 1-2 years after the change in the cash rate.
“With the first rate hike in May that suggests that the full impact of higher rates will not start to be felt until mid-next year.
“This is particularly the case in the current economic cycle with the bulk of the fixed-rate home loans rolling off next year.”
Article source: www.9news.com.au