The big four banks have all predicted that house prices will take a dramatic tumble in 2023 with many experts predicting the falls to be double digits. But, when looking at the property markets on a more macro level, you will start to see what is really going on. When you are a professional property buyer the market trends and signals are clear, so here’s how we see the markets performing in 2023.
Most importantly, try to keep things in perspective. Whilst the big picture is that overall the Australian property market is in a downturn, this does not mean that all the nation’s property markets are being impacted equally. Some markets are being hit stronger than others whilst some markets are even seeing strong growth.
When the media reports on how the Australian property market is performing, it is very general. It does not distinguish that each State is performing differently, and within each State there are many markets, and each of these markets are at their own stage in the property cycle. As an investor, you will recognise that there is not one overall market but rather multiple markets with property values falling in some locations, stagnant in others and there are even a few locations where housing values are rising.
What’s influencing the growth in the current property market?
Even with the current interest rate hikes, we are still seeing growth in some property markets of the Gold Coast and Sydney. It’s just that the growth rates in many markets is at a slower rate compared to a few years ago and it is strongly dependent on the particular area and property type. What we are seeing is that in some areas where we have recently experienced double-digit growth, this has slowed to single digit growth. Any experienced property investor would look to buy property in an area that has multiple growth drivers to protect against a fall in any one growth driver.
The reduction in buyers borrowing power due to the recent interest rate increases has driven the slowdown in the current property markets, and some buyers have had to exit the market altogether as they are no longer able to borrow enough to afford to buy in a capital city.
Will property prices crash in 2023?
According to ANZ’s most recent housing report, capital city property prices are set to fall 18% over the balance of 2022-23, before climbing by a modest 5% in late 2024. This is much higher than what the Reserve Bank of Australia is predicting, which is a national house price drop of 11% by the end of 2023. But you need to take this advice with a grain of salt. The “experts” at Commonwealth Bank predicted 20% plus price falls in the Australian Property Market during the pandemic, however we actually experienced price increases in many markets across the country.
As experienced property buyers, we know that ‘no one has a crystal ball’ meaning that no one can really predict what will happen with property prices in 2023, but we do understand what to look for that would trigger a price “crash” and we understand how to protect our investment properties from a price downturn.
In order for property prices to crash, we would need to see a storm of the following:
– Rising interest rates alongside;
– Rising unemployment alongside;
– Rising cost of living alongside;
– A downturn in the economy alongside;
– A drop in housing demand.
One thing that is keeping our property market strong is the unemployment rate.
Currently, the Australian unemployment rate is at 3.4% which is the lowest ever since the mid-1970s. There is actually a shortage of workers available in many industries at the moment. A safe level of unemployment is considered around 4.5%-5% and we would begin to worry if unemployment started rising above this to around 6% or more. For a crash to occur we would see unemployment above 6% or closer to the 7% mark.
Currently, there is such a strong demand for housing that builders are unable to keep up. The rising cost of materials and lack of available land in popular areas means that there just isn’t enough housing being built to keep up with demand, so much so that this has led to a housing shortage crisis across the country.
How to protect your investment property from declining in value?
If you are worried about a fall in the property market, the best way to protect your investment property is by manufacturing equity in your property so that it doesn’t matter how the market is performing, you are still able to make some gains on your property.
To manufacture equity in your property this can be done through renovation, basic upgrades, landscaping, or subdividing the land. Basically, anything that will create more value for your investment property is how you can manufacture equity in your investment, so you no longer need to rely on the growth of the market.
What’s the future of the property market?
There is speculation that the Reserve Bank of Australia will bring the cash rate down to under 3% in 2024 which is when we will see the current buyer’s market starting its pivot into a seller’s market and this is when we will start to see high clearance rates, competitive auctions, and rising property prices across the capital cities.
Property will always move in cycles, but remember that property is a long-term gain and you just need to ride out the waves for the long term.
If you are looking for a buyer’s agent to assist you with purchasing a home or investment property in the Sydney, Brisbane and Newcastle regions, as well as SA, TAS, ACT, VIC, NSW & QLD please get in touch with Lloyd Edge and his team at Aus Property Professionals here or give us a call on 1800 146 837!
