WEALTH HUB JOURNAL

Property Market Outlook: Everything You Need to Know for 2023

When the property market in 2022 failed to continue breaking records like the year before, doomsayers began warning of a possible crash in 2023. After all, interest rates are up and inflation is hurting everyone’s pocketbooks—at first glance, the situation might not look great. However, looking at several factors should assuage those worries and even point to a potential second boom.

Let’s take a closer look at the current state of the property market so we can put any fears of a crash into perspective.

Current State of the Property Market

The Australian property market today isn’t soaring like it was in 2021. That year the annual rental growth reached heights we hadn’t seen since 2008. Fueled by grants and tax cuts, there were more first-time home buyers in January 2021 than we’d seen since the spike in 2009 and 2010.

After a boom, it’s natural for a market to enter a “correction” cycle. As of November 2022, combined capital city property prices had fallen 6.5% after a 25.5% rise. In Sydney, home prices were down 10.2% after a 27.7% rise that peaked in January. And in Melbourne, home values had decreased 6.4% since February after a 17.3% rise.

While home values in capital cities may have decreased, they’re still strong. In November 2022, the median dwelling value in Sydney was $1,025,684, down 4.4% for the quarter. And in Melbourne it was $759,496, down 2.7% for the quarter. However, everywhere but in Brisbane the decline has been slowing over the past few months.

Here are some other promising indicators that we’re headed for a stronger market in 2023:

• 0.9% vacancy rate as of September 2022. These lows include 1.1% vacancy in Sydney and 1.3% in Melbourne. Typically, vacancy is around 3% in a balanced market.
• Continued shortage of real estate due to land prices, individuals owning multiple homes without renting them out, and other factors.
• Slow construction of new homes due to price increases caused by the pandemic and supply chain issues.
• Stimulus packages for first-time home buyers.
• Influx of students and migrants returning due to relaxed COVID protocols.

High demand and low supply drives prices up. Adding new properties to your portfolio today positions you for a good return on your investment as property values rise.

What Do Rising Interest Rates Really Mean?

Australians are feeling the sting of high interest rates, and this has been the basis of some forecasters’ negative projections for the market. In December 2022, interest rates climbed to 3.1%.

However, there are plenty of reasons why this shouldn’t be taken as a sign of an impending crash:

1. Australians are in a better financial position than ever to absorb these increased rates. In fact, in September 2022, Australians were named the world’s richest people by Financial Review.
2. Only 35% of Australians are paying a mortgage, while 31% of homes are owned outright and 30.6% of people are renting.
3. From a historical perspective, interest rates are still in good shape. From 1990 to 2022, the average was 3.85%. That’s .84% higher than it is today. In January 1990 interest rates reached a staggering 17.5%.
4. The price of oil has dropped, indicating we may see inflation peak sooner and lower than some experts projected.
5. Lenders take interest rate into account when granting a loan, which should soften the blow of the 3.1% increase for new borrowers.
6. Unemployment is down and wages are increasing.

There’s More Than One Housing Market

While some experts are generalising that we’ll see a 20% freefall in housing markets in 2023, it’s important to remember that there’s no singular “market.” The market contains numerous individual markets that behave differently—driven by location, demand, and affordability.

For example, the market for apartments in Sydney will rise and fall independently of the market for single-family dwellings in Canberra. So any climb or drop in the generalised “market” won’t affect all markets the same.

So prognosticating doom for the housing market ignores the nuances and intricacies of these individual markets.

Conclusion

If you’ve been hearing grim projections for the property market in 2023, you don’t need to worry that the value of your home or investment portfolio will evaporate. Even with the decline we’re seeing today, your property value is still in good shape from a historical perspective. In fact, the value of your property has risen sharply over the past couple years—8.5% in just the past 12 months.

While it’s always important to have financial buffers and prepare for the unexpected, don’t let this “correction” cycle or pessimistic headlines create distress over the long-term future of your investment.

Wherever you are in your investment journey, Wealth Hub Australia’s network of certified professionals can walk beside you to help you acquire properties and ensure you’re maximising your investments. With our proven strategy, we help everyday Australians build wealth, reach financial independence, and establish a legacy.

Contact Wealth Hub Australia today.

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