2023 Property Market Outlook

Looking back at the pandemic period, the housing market in Australia experienced significant growth. However, in 2022, interest rates rose rapidly, causing a correction in the market. National home prices fell for nine consecutive months, with most markets experiencing a significant tightening since May. Although the housing market correction lost momentum in recent months, the pace of price falls has lessened.

After national home prices showed a small increase of 0.09% in January 2023, they rose to 0.18% in February 2023, resulting in a cumulative bounce of 0.27%. National annual price growth is now sitting at -3.44%, the slowest pace since June 2019, with the notable 325 basis points of cash rate tightening weighing on home prices in most parts of the country.

Although interest rates have been the primary driver of home price falls, there are other factors at play. The level of supply will also influence the duration and depth of the current downturn. With the expected additional rate rises, borrowing costs will continue to increase, and maximum borrowing capacities will be further reduced, which will weigh on prices.

Currently, market conditions are favourable for sellers as there is low competition with other vendors, while buyers compete for the limited available stock. This has resulted in concentrated buyer demand, which has helped to support home prices to some extent. However, it is still too early to conclude that the housing market downturn has ended.

Despite the decrease in the number of properties listed for sale in several markets, there is still enough demand from homebuyers to prevent prices from declining sharply, despite the potential impact of the shift in borrowing capacities. However, if there is an increase in the availability of properties in the next few months, it could weaken the support for home prices and, together with the effects of interest rate hikes, lead to a decline in prices in the near future.

Regional markets and comparatively affordable capital city markets, such as Adelaide and Perth, continue to exhibit a slower rate of decline in home prices. This is likely due to shifting lifestyle priorities, migration trends, and affordability advantages that are still having an impact. Despite the challenge of rising borrowing costs, it's probable that these affordable capital cities and regional markets will still experience a slower rate of price falls.

If the Reserve Bank stops increasing interest rates this year, there is a good chance that home prices will start to stabilize as some of the uncertainty regarding borrowing capabilities and mortgage servicing costs for buyers decreases. It's possible that we are approaching the highest point of interest rate tightening, so the situation may improve.

Source: https://www.realestate.com.au/insights/proptrack-home-price-index-february-2023/
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