In the past few years, the Australian housing market has been in a state of flux, with rising prices, increased supply, and shifts in buyer demand. As the market continues to evolve, it's important for potential homeowners and investors to stay up-to-date on the current trends and understand what the future may hold.
In this article, we'll be taking an insightful look into the Australian housing market in 2023, exploring what to expect and how to prepare for the coming years. Drawing on industry insights and forecasts, we'll examine the changing landscape and explore the potential impact of government policies, economic conditions, and population dynamics. By considering these factors, readers can gain a better understanding of what the future may bring and be better equipped to make informed decisions about their housing needs.
What to expect from Australia's Housing markets in the year 2023?
Over the last few years, it has been difficult to accurately predict trends in the property market. Nonetheless, I will attempt to provide some projections for the year 2023.
House Prices are Expected to Fall
We have witnessed a decrease in housing value in both metropolitan and rural parts of Australia, but this decline is beginning to decelerate. Moreover, the housing sector is fragmented - There are markets within markets, ranging from houses to apartments, townhouses, and villa units, which can be found in the outer suburbs, middle ring suburbs, inner suburbs, and the CBD. Each type of these properties has been showing various behaviours in the market.
The Australian markets have been struggling in general, mostly because of the reduced buyer assurance (the RBA wishes to reduce the public's exuberance to help control inflation) and largely due to affordability constraints.
Essentially, the cost of properties has increased, meaning that buyers need more capital and unfortunately, due to higher interest rates, buyers borrowing capacity is less than it was before.
With the rising costs of goods and services combined with inflation, it has become increasingly difficult to put money aside for a deposit.
This can explain why we are currently experiencing a decline in the market, isn’t it?
Furthermore, The decrease in the number of new listings for sale has helped to alleviate some of the competition, while people are beginning to re-direct their expenditures from goods to services. At the same time, consumer and homebuyer confidence has been affected due to worries about increasing interest rates, rising inflation, and the outlook on house prices.
There is Still High Demand For Real Estate
Property values are determined by numerous elements, but the primary forces that contribute to its price are consumer assurance, access to credit, low-interest rates, economic expansion, and a balanced supply-demand ratio.
The data illustrated in a chart that was posted by Michael Yardney on Propertyupdate.com.au indicates that both residential buyers and investors are obtaining loan authorisations, signalling that they plan to purchase real estate.
As previously mentioned, the property market is currently in a slump and the prices of many properties are likely to decline in the near future. Nevertheless, this should only be temporary.
Despite the general slump in the Australian real estate market, certain areas still remain robust with high-end residences and investment-grade assets seeing great demand.
Despite the current state of the market, investors with a strategy are not discouraged; they recognise that real estate is a long-term investment and are more concerned with the growth in value over time rather than any momentary downturns.
There is a decent chance that prices will continue to drop as the Reserve Bank of Australia proceeds with its rapid monetary policy to control inflation. Fixed rates have already increased notably, and the cash rate is now having an effect on variable mortgage rates, leading to higher minimum payments and diminishing the amount of money that can be borrowed.
The Australian Real Estate Market is Expected to be Fragmented
The recent surge in property prices was remarkable. Almost all real estate in all regions of Australia experienced a striking increase in prices.
As we continue, it is likely that the real estate industry will be more diversified. It is inevitable that certain groups of demographics will confront the increasing cost of living due to rising rents or mortgages and wages that are not able to keep up with inflation, possibly blocking them from entering the housing market or severely constraining their ability to borrow.
The lower end of the real estate sector will be adversely affected due to the fact that a large number of first-home buyers took out loans to their maximum capacity, and they may have difficulty keeping up with their mortgage payments when interest rates go up or when they switch from fixed to variable loan rates.
Consequently, it would be hard to see an increase in the value of the property at the lower end of the real estate market, so I would suggest investing in locations where the locals' earnings are increasing at a faster rate than the national standard.
Homebuyers Will Continue to Show an Interest in Purchasing Properties
In the previous year, when real estate prices drastically increased in Australia, the media consistently highlighted the fact that we were in the midst of a booming property market. As we have discussed, due to the decrease in the general expansion of real estate, buyers are getting more careful with their choices.
Yet there is an excessive demand for A-grade homes and investments-grade properties, which surpasses the number of properties up for sale. This will act to maintain the value of such properties in the future.
While certain individuals who prefer to choose their investments carefully have left the property market, there are still those who are either getting married, breaking up or having babies, resulting in a need for new homes. Therefore, the real estate markets will always be active.
Investors Will Keep Attracted To The Real Estate Sector
As the cost of rent increases and the number of people buying their first homes decreases, those who have a reasonable outlook on the future (investors) will return to the real estate market.
Over the last few years, investor lending has been quite low, but with the current historically low-interest rates and relaxed lending requirements, investors have returned.
How Long Will This Economic Decline Persist?
At the moment, there is a great chance for property investors who are looking for the long-term.
It's not because prices are low right now, but in the future, the cost of the property now will seem very affordable.
Due to a lack of faith by consumers, there is a chance for people who are wanting to buy a house or invest in property to do so, as many of them are currently not taking advantage of this opportunity.
Nevertheless, I assume that in the near future when potential customers recognize that interest rates are close to their highest point, inflation has achieved its highest point and the RBA's attempts are successful in reducing it.
At the present time, when public opinion towards buying is not positive, this can be observed in a variety of measures, such as:
- An increase in the number of trading days on the stock market.
- The amount of property being sold has decreased.
- Vendors are offering more and more discounted prices.
- The success rate of auctions is decreasing.
- Property prices that are more expensive tend to decrease in value first.
- Buyers will be more reassured and return to the market.
- The decrease in real estate prices will stop.
- Vendors will be more likely to list their assets for sale.
- The cost of goods and services will remain consistent for a period of time before gradually increasing.
- The media will begin to report on positive real estate stories.
As consumer confidence grows, it is probable that, by the first or second quarter of 2023, the inflation rate will have reached its highest point and the Reserve Bank of Australia will not have to raise interest rates further. This will lead to a change in the metrics.
Therefore, I highly suggest that if you are financially stable, you should invest while others are hesitating. It may seem contradictory to purchase assets in a downward market, however, there are numerous valid arguments why investing now is the best course of action and this has been proven by history.