Expert Insights: A Look into the Australian Property for 2023
According to Nicola Powell, the Chief of Research and Economics at Domain, the property market in 2022 was a bit of a rollercoaster ride, with record prices at the start of the year followed by a downturn. The situation was not helped by comments from the RBA governor, Phillip Lowe, who initially stated that rates would not rise until 2024 but later had to step back from this advice.
Despite the challenges, experts are optimistic that the market will stabilize in 2023 as interest rates begin to plateau. This will bring much-needed relief to buyers, sellers, and investors, who have been struggling to navigate the choppy waters of the property market in recent times. While caution is still advised, there are some positive signs on the horizon for the Australian property market in the coming year.
As we enter 2023, the Australian property market is cautiously optimistic about what's in store for mortgage rates. The unprecedented rise in rates seen in 2022, which increased eight times to end the year at 3.1%, was a significant hit to the market, and buyers felt the brunt of it.
However, property experts are hopeful that the market has adjusted to the new norm of rising interest rates. Buyers are factoring in future rate hikes, and while more rate rises are predicted in 2023, they are not expected to be as severe as those seen last year, nor as frequent.
Chief of research and economics at Domain, Nicola Powell, highlights that the rate increases last year had a considerable impact on buyers. For a mortgage of $500,000, the rate hikes in 2022 added almost an extra $900 a month to repayments.
Despite this, the number of listings selling under distressed conditions nationally declined over the month of December, rising only slightly (2.9%) over the year, according to SQM Research. Managing Director of SQM Research, Louis Christopher, notes that distressed listings recorded a fall for the month, suggesting that there isn't a lot of forced selling activity yet, and property owners are still meeting their mortgage repayments.
As the new year gets underway, many are wondering whether house prices will continue to decline in 2023. While experts predict further softening in the housing market, the fall may not be as steep as some anticipate if the Reserve Bank of Australia (RBA) halts its rate increases before the cash rate reaches 4%.
According to SQM Research's Louis Christopher, a cash rate of 4% could be a tipping point for distressed properties and cause a significant rise in default and forced selling activity, leading to further downward pressure on housing prices. However, Christopher is optimistic that the RBA is aware of this risk and does not believe that rates will reach that high. In fact, he predicts that prices will stabilize during the year.
Despite the expected softening in house prices, the good news is that there are currently fewer distressed listings on the market. Christopher notes that nationally, these declined over the month of December, and he believes that property owners are still meeting their mortgage repayments despite the rate increases seen in 2022. So while house prices may continue to soften, the situation is not as dire as it may seem.
Australian cities continue to show differences in median dwelling prices. As of January 3, 2023, Sydney still holds the title for having the most expensive properties, with a median dwelling asking price of $1.27 million, according to SQM Data. This represents an increase of 3.1% in just one month. The average capital city asking price, on the other hand, is $1.02 million.
According to Louis Christopher of SQM Research, Sydney's high property prices are expected to continue. Meanwhile, Melbourne's projected larger population won't change the fact that Sydney remains more expensive. Christopher also notes that the limited supply opportunities in Sydney, due to its geographical limitations, play a part in its property price.
However, Perth is emerging as a market that offers relatively good value in 2023. Its economy has withstood the effects of the pandemic and interest rate rises, and it has upside potential, especially with the opening of China and the expected increase in demand for commodities as well as real estate from Chinese investors.
Different cities offer varying opportunities, depending on one's financial goals. For those looking for a higher cash flow, some other markets have much higher rental yields. For example, Perth's yields are above 5% for houses and above 6% for units, compared to Sydney's below 3% for houses and just 4% for units. It's important to consider all factors before deciding which city to invest in.
As we begin the new year, property market analysts have set their sights on the potential trends for 2023. According to SQM Data, Sydney continues to lead the way as the most expensive city in Australia, with a median asking price of $1.27 million. However, Perth could be an attractive option for buyers seeking better value, with a thriving economy and promising prospects for Chinese investors.
While experts predict that house prices will soften in 2023, some first-time buyers may return to the market, thanks to attractive incentives currently on offer. In fact, property analyst Christopher expects first-time buyers to lead the charge, followed by investors who may be enticed by rising rental yields.
However, concerns have been raised about the impact of rising interest rates on the property market. Christopher warns that if the cash rate were to reach 4%, distressed properties could face a market thud, resulting in significant stress and forced selling activity that could further drive down housing prices. Nevertheless, Powell remains optimistic that the RBA will take steps to stabilize rates and avoid such a scenario.
When considering different property markets, Powell advises that investors weigh up their financial goals and consider factors such as rental yields. While yields in Sydney are below 3% for houses and 4% for units, Perth offers yields above 5% for houses and above 6% for units. With rental yields on the rise, now could be a lucrative time for investors to re-enter the market.
Rental Yields on the Rise: Is the Australian Property Market Ripe for Investment in 2023?
With rental yields climbing dramatically over the past year, property investors are keeping a close eye on the Australian market. Domain's data shows that in the December quarter, rental prices for houses rose by 14.6%, and by 17.6% for units. This has led to record price growth, with no signs of it slowing down.
“Investors are taking notice of the rising rental yields,” says Powell, “which has led to a resurgence in the Australian property market. Higher rents and rental yields are making property investment increasingly lucrative.”
Despite the high prices, first home buyers are also returning to the market. Incentives offered to first-time buyers have made it possible for them to buy property, even in expensive areas like Sydney. Christopher predicts that we will see more first-time buyers in the market in 2023, followed by investors.
As demand for rental properties continues to rise, Christopher expects rental yields to peak later this year. “As the rental market continues to heat up, more and more people will start sharing housing, which will create opportunities for first-time buyers.”
In conclusion, with rising rental yields and a growing number of first-time buyers and investors, the Australian property market looks promising in 2023. If you're considering buying property, now may be the perfect time to take the leap.