The values of homes and the state of the housing market are (along with the footy) one of the most common topics of discussion around the BBQ in Australia. Aussies have a passionate interest in housing, being both a key store of wealth and, for many, a measure of ‘success’ in Australia.

In recent times, those discussions have most likely focused on COVID, wars, floods and Warnie. Crazy times.

Yet the housing market is at a very interesting time – a key point of inflexion or change. What is happening? What impact are interest rates, population growth and global events having on house prices? Is 2022 a good time to purchase, sell and/or invest in property?

Housing Market Growth Over the Past 12 Months is Not Sustainable

The first step is to understand what the market has done over the past 12 months. As the table below highlights, property values across the country have grown 20.6% in the past 12 months, with growth in Sydney, Brisbane, Adelaide, Hobart, Canberra and the regions even higher. This level of growth is clearly not sustainable, particularly when people’s incomes are only growing around 2%-3%.  People only have so much income to devote to housing and repay a mortgage!

Housing Market Growth Over the Past 12 Months is Not Sustainable

This Rate of Property Price Growth is Already Slowing

The second point to note is that the rate of property price growth across the country has been slowing since April 2021. The slowdown is most pronounced in Sydney and Melbourne, with both markets exhibiting basically flat house price growth in February.

What Does This Mean for Property Prices in 2022?

So, what does all this mean for Australian house prices and the property market in 2022?

House Prices Are Likely to Stagnate

Housing values are likely to stagnate and potentially modestly decline in Sydney and Melbourne for the remainder of 2022, with continued modest growth in other capitals and regional locations for some months most likely.

Increases in Interest Rates Will Negatively Impact Property Prices

With inflation under pressure from supply chain constraints and rising oil and fuel costs impacting on the transport sector, the Reserve Bank is likely to raise the cash rate in the second half of 2022, likely on more than one occasion.  Previous analysis from CoreLogic shows a strong inverse (negative) correlation between movements in the cash rate and housing values. So interest rates are a key factor in the future trajectory of the housing market, along with wages growth. The quicker and more extreme the increases, the more the negative impact on housing values.

A Competitive Rental Market May Attract Property Investors

Rents in many markets are now rising faster than values, meaning rental returns/yields for property investors are now improving, suggesting property investors may be looking to return to the market in greater numbers, particularly given overseas immigration is likely to reopen in 2022, increasing the demand for rental accommodation.

Global Events are Influencing the Australian Economy and Housing Market

There are many material events impacting the global economy and in turn impacting Australia and our economy and housing market.  These include the ongoing effects of the Pandemic on global supply chains, workforce participation and consumer confidence, the war in Ukraine and the Federal Budget in March and election in May.

The Factors Offsetting a Significant Downturn

Despite the growing downside risks to the housing sector, other factors should help to offset a significant downturn.  As the economy strengthens and labour markets tighten, the risks around mortgage stress or default should lessen.  Additionally, it will take some time for interest rates to normalise once they start rising, providing a low cost of housing credit for some time yet.

Is it a Good Time to Buy Property in Australia?

As always, property investment is a personal decision, ideally with a long-term focus, which has proved to be a very sound vehicle for wealth creation in Australia over many decades. Ultimately, the right time to buy property is entirely up to you.

Disclaimer: This article is not intended as legal, financial or investment advice and should not be construed or relied on as such. Before making any commitment of a legal or financial nature you should seek advice from a qualified and registered Australian legal practitioner or financial or investment advisor.