Property Market Forecast

While 2021 was a challenging year with the myriad of implications brought on by the pandemic, housing markets across the country experienced an unprecedented boom in prices.

Now people are asking, “Will the property market crash in 2022?”.

Although commentary around property price falls has increased, it's unlikely that prices will see a sharp decline this year.

“Are the Australian property markets going to crash in 2022?”

It makes sense that people are wondering whether there is a looming crash on the horizon. There have been plenty of property pessimists suggesting that markets are going to crash and housing values are going to drop up to 20%. Rest assured— they’ve been predicting the same thing every year for the last 10 years and they have never been right.

Since the beginning of the year, the rate of house price growth has slowed, and although APRA would like to see housing markets across the country settle, property values have continued to rise. Many experts have predicted that property values will continue to increase throughout the year ahead, although not at the record-breaking pace seen last year.

“Our property markets are just going to move out of the sixth gear into third or fourth gear – they are not going into reverse.

— Michael Yardney

What are the banks forecasting?At the end of 2021, the big four banks made the following predictions for 2022 and 2023:

• NAB forecast a 4.9% rise in property values in 2022 and a 4% fall in 2023.
• ANZ’s prediction is a 6% price lift this year and a 4% drop in 2023.
• The CBA expects house prices to rise 7% in 2022, and 10% in 2023.
• Westpac predicts an 8% rise in 2022 and a 5% correction in 2023.

Regional relocations to continue

Since the onset of the pandemic, we’ve seen more people move to regional areas of the country than ever before— it’s expected that this trend will continue throughout the rest of 2022. The ongoing regional migration is attributed to changes in the way we work, greater demand for second properties, and a search for more space. While the rate of sea-changers and tree-changers is predicted to slow, it’s likely that the regional shift will continue, primarily because it was already occurring prior to COVID-19.

In the five years before the pandemic, areas like Geelong saw some of the highest price growth in Australia. Experts have suggested that areas that are within commuting distance to capital cities will continue to see population movement, with a flow-on effect to price growth.

Additionally, ongoing lockdowns in Victoria throughout 2021 resulted in a northern migration to warmer climates which in turn resulted in strong conditions in south-east Queensland and some areas of northern New South Wales. Again, this trend is forecast to continue this year, although not at the same rate seen in 2021.

Interest rates to rise?The majority of forecasters expect the Reserve Bank to begin lifting the cash rate in the second half of this year.

We agree— the inevitable will happen and rates will go up at some point, but it’s not all bad news. If you’re a property investor and you have good cash flow then a rate increase shouldn’t be a problem. To hear Michael Mancuso speak more about a potential rise in interest rates, click here.

However, it's still too early to tell whether interest rates will rise prior to 2024. The key indicator to keep an eye on is inflation which is expected to be higher than usual in the coming months although this is expected to be temporary. If that is the case, then there won't be a rise in interest rates in 2022.

Rents to strongly increase

Increased rental demand at a time of very low vacancy rates will see rentals continue to rise throughout 2022.

Areas that attracted population growth from high levels of interstate and intrastate migration saw high rental demand, and as a result, strong growth in rents. Rental markets also benefited from high savings rates— a factor that also drove up house prices.

Additionally, as international borders reopen, we’re seeing further increased demand for rental housing.

With foreign students returning, we’ll see increased pressure on apartment rents close to education facilities and within our CBDs.

Construction costs to moderate

A surge in new builds and renovations coupled with supply chain disruptions and a shortage of materials resulted in an unprecedented spike in construction costs in the September quarter. It's likely these higher costs will continue in the first half of the year and may also be exacerbated by high wages costs and stockpiling of materials.

By the second half of the year, many of the supply disruptions will have flowed through and construction costs should begin to moderate.

In addition to all of this, low mortgage rates continue to underpin very strong growth in property prices throughout Australia.

Ongoing strength in housing finance, elevated auction clearance rates, and continued low stock levels suggest housing prices will continue to rise steadily throughout 2022.

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