Australian property outlook for 2022 and 2023

While globally there's a huge amount of uncertainty, in Australia we feel that our property market has escaped relatively unscathed. True, property sales are slowing or even declining in some areas. However, we believe that once buyers and sellers recalibrate for this ‘ return to normal ' market, we will see renewed confidence.

The market might appear to be tapped out, but that is far from the truth. The shock interest rate rises, especially after the governor of the Reserve Bank had promised no rate rises until 2024, led to many potential buyers pressing ‘pause’ while they caught up with what was likely to happen later in the year and into 2023.

We’re now seeing signs in the United States, whose lead Australia tends to follow, that interest rate rises will ease now inflationary pressures are under control.

Importantly, although we have seen what might be termed a housing bubble in the next few years, no one has asked the question: When will Australian house prices crash? In our experience, only a truly catastrophic event such as another global financial crash would lead to a true housing crash in Australia. It’s more the market is self-correcting after unsustainable highs.

However, our own local research might not be enough to convince you so we rounded up the views of some of Australia’s property economists for their predictions for property in 2022 and 2023.

Property forecast

To be fair, modeling shows everything from the Reserve Bank of Australia (RBA) indicating a ‘correction’ to house prices of 30% over the next four years to predictions based on a model similar to that of the RBA that house prices will rise 25% between now and December 2023. The RBA modeling is based on market sensitivity to interest rate rises. As inflation in Australia and the United States stabilises or decreases, we believe that the real story is somewhere between the two extremes. Federal Treasurer Jim Chalmers expects Australia's inflation will peak at an annual rate of 7.75% by the December quarter of 2022 before dropping gradually in the months following; that is, the RBA will heed the US Federal Reserve Chair Jerome Powell’s comment that, “... there will be a point where the Fed starts to slow hikes to assess their impact”.

What economists are predicting
In the property market over the last two years, we’ve seen once-in-a-generation growth. Investors are following global megatrends, one of which is to include more ‘real’ assets in their investment portfolios. This is good news for property sellers. But what are the experts predicting for the next 12 months?

Finder.com.au

Finder gathers information from banks and economists to help property buyers and sellers understand what is happening in the market. In August 2022, they quoted ANZ Bank data that predicted a ‘property price crash’ of 20% by the end of 2023. However, property expert Michael Yardney puts this information into perspective. Property prices could crash only if some sellers were forced to sell and there weren’t enough buyers. However, interest rates are still not at historically high levels so there should be few forced sales.

HSBC

Paul Bloxham, the chief economist at HSBC, made one of the more accurate price predictions for 2020. For 2022 and into 2023, Paul has revised his 2023 housing price forecasts from a growth of between 1% and 4% to a fall of between 5% and 10%. However, note that he made these predictions in May before inflation globally was tempered. Inflation in August was stable at 6.1%. The predicted interest rate rises in the United States, where inflation is 8.52% and falling, are unlikely to be implemented; Australia will potentially follow suit.

Westpac
Westpac painted a gloomy picture for 2020 and they have held true to form for 2023, with a national predicted price decline of 16% by the end of 2023. Senior economist Matthew Hassan commented that the housing downturn that began at the start of 2022 had accelerated. However, Westpac does note that the price declines are more ‘corrections’ of the previous overheated property market.

CommBank

CommBank had been slightly more optimistic, predicting a property price decline of just 8% in 2023. Economists have since revised their position, now predicting national price declines of around 15%. However, we need to remember that the declines come from once-in-a-generation home prices.

UBS

Global investment bank UBS warned that too many interest rate hikes could lead to an Australian property market crash. Should interest rates reach an expected 3.5% in March next year, this could likely lead to a recession, commented George Tharenou, chief economist at UBS. However, given the Reserve Bank of Australia (RBA) predicts inflation levels to drop to just over 4% in 2023, we can trust restraint from the RBA when it comes to more interest rate rises.

AMP

You may be familiar with AMP Capital chief economist Shane Oliver, whose pronouncements on property appear regularly in the media. Dr Oliver predicts home prices will fall by around 20% in Sydney and Melbourne and around 10% in the regions. Oliver believes that the RBA will take the cash rate to only around 2.5% ‒ still a stretch for some homeowners with hefty mortgages but a lower level should limit price falls.

SQM Research

SQM Research’s Louis Christopher is one of the more reliable predictors of house price changes. SQM’s property price index is an excellent tool for tracking movements. You can also check out their free charts for your postcode. 

Opportunities in a declining market

Falling prices offer great opportunities for investors and sellers alike. Sellers who wish to downsize and move to the regions or buy a smaller property will benefit from falling prices. Investors who are fully aware of their cash position, equity and tax stance can take advantage of lower prices to expand their portfolios.

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