Show notes – 2022 Review and 2023 Predictions – What did we get right? And what did we not predict? (Ep. 189)

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In this week’s episode, Dave, Cate and Pete take you through their 2023 predictions, but they also review their 2022 forecasts. Tune in to find out…

1. What will the market do? It seems the trio were optimistic in their predictions for 2023, but Cate did add a little disclaimer stating “providing no shocks to the market”. It appears that imminent interest rate rises were not easily predicted by the trio at the start of 2022. The trio did regroup mid-year in 2022 and by this stage our markets were in the grip of rising inflation and RBA action, and not to mention a war in Ukraine. How did their predictions for 2023 change then?

Cate and Pete feel positively about the state of the market in 2023, and for slightly different reasons. Dave concurs that a change in the buffer rate may provide some degree of reprieve for buyers, but he maintains that he feels dwelling values will decrease between now and the end of 2023.

2. Capital city top performers – Pete’s predictions for capital city performers landed closest to the pin, however Dave did have some interesting insights into Melbourne and Perth’s growth and the impact of COVID on each city.

While Cate is disappointed with her predictions, she still believes Melbourne will exhibit some bounce-back in 2023 and she wonders about the outlook for Perth too. Pete throws us an interesting consideration to support his prediction that Sydney will be 2023’s top performer… we won’t spoil the surprise.

Dave’s insight around median value ratios is compelling though and he puts up a good argument to support Melbourne’s growth and he suggests that Adelaide and Hobart may be the under-performers of 2023.

3. Regional locations – Pete tipped that regional cities within a reasonable distance of the capital city would continue to outperform, while Cate pointed out the risk for holiday house and coastal market buyers as the heat comes out of the COVID escape locations.

4. Investor numbers – Funnily enough, the trio’s mention of APRA restrictions or regulator intervention underpinned their reservations about investor participation in 2022. However, at the time of their mid-2022 revision of their predictions, all had noted the increase in investor activity and the broad appeal of rising rents (and yields).

The trio all feel similarly about investment property uptake in 2023, but they do touch on the threats to investor participation.

5. Government intervention in the property market – Pete and Cate did not see interest rate increases coming, but Dave did think that APRIL would step in to restrict lending to some degree. As Pete points out though, there didn’t need to be any intervention. The RBA took care of that issue for us! Dave mentions first home buyer prioritisation and the Federal budget supports the importance of this cause from a political standpoint. See show notes for some of the available schemes.

6. Developers and building – Our trio got a lot of these predictions right. Into 2023, Cate thinks that private builders will start to free up and Pete supports a slow recovery as the supply chain woes subside. Dave is still fearful for building activity due to materials costs remaining high and trade labour shortages.

7. Interest rates – what do the trio think will happen this year? Pete thinks that the cash rate will be slightly lower at end-2023 than it is today, and Cate broadly agrees, but predicts some different increase increments to Pete’s. Dave feels our rate at year end will be the same as today’s. Time will tell!…

8. Rents and vacancy rates – The trio each saw some difficult writing on the wall as stock tightened in 2022. Dave feels the vacancy rates will remain static (historically low) while Cate feels things will get much worse for renters into 2023.

9. Sales volumes – Pete felt that sales volumes would remain high, and Cate’s prediction was not correct at all. Surprisingly for the trio, vendor listing and selling activity was lower than previous years. In hindsight this is easily explained by sentiment dropping in response to rapidly increasing interest rates. Cate’s prediction for listing and selling activity hinges on sentiment improving before things improve. Dave feels optimistic about sales volumes increasing in the latter half of the year.

10. Risks which could impact the market – This time, Cate did get some of her past predictions correct, and it was Dave who predicted that Russia could invade Ukraine. Dave’s potential risks for this year include China invading Taiwan, (low likelihood, Dave assures listeners), the Russia-Ukraine crisis worsening, and the share market correcting markedly, US and Eurozone entering a recession.

Cate identifies two risks; a recession and growing unemployment; two dire issues we hope don’t eventuate, but genuine risks that shouldn’t be overlooked.

Pete can’t identify any major events that could destabilise the economy, but he also reiterates that his crystal ball has a natural streak of optimism.

11. Inflation – Dave identified rising inflation in his prediction, and the trio pondered the inflation outlook for 2023. Pete’s “4%-5%” will be put to the test, and Cate believes that inflation could reverse suddenly once supply chain issues are contained. Dave is confident that inflation will result within the target range by the end of the year… here’s hoping he’s correct on this point too.

Gold Nuggets

Cate Bakos, the ‘Property Buyer’s Gold Nugget: Buyers who are prepared to bid at auction will have favourable conditions because many are anxious. about bidding unconditionally, and are sitting it out. Her best advice is for buyers to be fully credit assessed and to maintain dialogue with their strategic mortgage broker or bank as they approach an auction.

David Johnston, the ‘Property Planner’s Gold Nugget: Dave believes that 2023 is going to prove to be a great time to buy and current market conditions will represent the low water mark.

Resources

#137: Predictions for 2022 and a look in the rear-view mirror at 2021
#155: Plotting Australian property market movements from 1970 to now – the impacts of recessions, inflation, financial deregulation, population growth, unemployment rates and analysing what could disrupt the drivers of price increases?
#163: Predictions for 2022 revisited – Which predictions are on track, where we went wrong, revised expectations & forecasts. Half yearly report on capital cities, regional locations, the top performers & what do we expect in the back half of the year
#164: Analysing regional locations – What investment principles can be gleaned from the highest performing regions in each state? Comparing capital city vs regional performance from 2003 – before and after covid
#169: Houses vs units – Capital growth performance in capital cities and regions over the last 20 years and which locations have units outperformed houses and why?

Federal – Help To Buy – shared equity scheme (to be legislated – commencing July 2023)

The government helps Australians purchase a home by contributing up to 40% of the property price for a new home and up to 30% for an existing one.

Participants need just a 2% deposit and do not have to pay Lenders Mortgage Insurance.

They also do not have to pay rent on the portion of the home the government owns and they can buy out the government’s share when they are able.

The scheme is designed to help with the longstanding affordability crisis. There would be 10,000 places available for eligible Australians each year.

VIC – Home Buyer Fund – shared equity scheme (announcement 24 Oct 22)

The Andrews Labor Government is super-sizing the popular Victorian Homebuyer Fund – committing $1.1 billion to triple the size of available support and help thousands more Victorians realise their dream of owning a home.

The new funding will add to the $500 million existing investment in the shared equity scheme that makes home ownership more achievable for many Victorians. So far, the fund has helped more than 2,000 Victorians buy a home with an additional 1,000 applicants approved to start house-hunting knowing they have a secure funding partner.

Through the shared equity scheme, eligible participants require only a five per cent deposit and the Victorian Government provides up to 25 per cent of the purchase price of the home – reducing the size of participants’ mortgage repayments and also saving lenders mortgage insurance.

Participating homeowners can buy out the Government’s share at market value over time, with payments reinvested to help other aspiring homebuyers get into the property market. The scheme is open to homes valued below $950,000 in Melbourne and Geelong, and $600,000 in regional Victoria.

The new investment will open the door to home ownership to a further 7,000 people, taking the total to 10,000.

NSW – Shared equity Home Buyer Helper

Commencing 23 Jan 2023

The NSW Government will contribute a proportion of the purchase price of a property in exchange for an equivalent interest in the property.

The contribution is a percentage of the purchase price and the maximum amount is determined by whether it is a new or existing home.

New home – up to 40%
Existing home – up to 30%

As long as a participant remains eligible for the initiative, no repayments are required, and no rent or interest will be charged. Participants can also make voluntary payments to progressively increase their ownership share in the property.

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