What will the market do in 2022?
Australia wide increase by 7 – 12%, but most, if not all, capital cities will underperform 2021 increases. This is slightly above what most economists are predicting, which is in the 3% to 10% range. But I think the market could surprise and be double digit growth again.
Which capital cities will be top performers?
- Brisbane – momentum will continue and Brisbane will continue to hold on to the top spot.
- Adelaide – has solid momentum.
- Perth – subject to Perth borders opening from February as has been decided and staying open all year.
- Hobart – continues to have stock shortage.
- Highly sought-after coastal areas around the country – but I think once all beachside locations peak, we will see a long flat period of minimal and or negative growth for many years.
- I did think Melbourne was going to recover and it certainly is a buying opportunity, but the recovery may play out over more than one year. Melbourne’s median value has dropped below Canberra and significantly lower than Sydney, I think the stigma of shut downs and also the desire to escape the potential for future covid lockdowns, that not as many will migrate to Melbourne from interstate in the next 12 months, but it will rebound over time. I’m also worried about the stigma from Perth and having borders shut for so long.
Performance of regional locations
Performance between capital cities and regions to be fairly even and we could see the gap continue to close. For regional locations, the Double whammy of demand (capital city exodus and also the well off in capital cities desire for buying holiday getaways) is still there.
Investors in the market
Investor numbers will continue to increase and this will become a political issue, with lots of noise in the media. This will drive some kind of policy intervention during the year – whether it’s APRA broadly making it harder for all consumers to borrow or something specifically to target investors.
Will APRA intervene in the market?
Yes, especially if interest rates stay at the same level all year. I think either APRA restricts lending to some degree OR there will be new government policy designed to:
- Increase supply.
- Assist first time buyers.
- Restrict investor numbers.
The media is too powerful nowadays and there will be promises made by our politicians prior to the election. Of course the policies implemented will be dependent on which party wins the election.
Developers and building
Builders will continue to be very expensive due to the overhang of the HomeBuilder stimulus and supply chains not untangling as easily as many thought or hoped.
- The cash rate to remain at the same level OR a rise of 0.25% in the second half of the year. The RBA will announce the end of Quantitative Easing measures after the first RBA meeting, which is scheduled to occur in February.
- Fixed rates continue to increase further.
- The US will increase the cash rate 3 or more times and that will put pressure on rate increases on countries like Australia and the Aussie dollar.
The rental market
- Rents will continue increasing at a more stable pace, but at an above average rate. Increasing investor purchases will put downward pressure on this gradually over the year and so will policy intervention. But the return of international migration and overseas students in line with historical numbers will offset this.
- Vacancy rates will remain very low, which will also be partly due to the lag time of new properties being finished due to slowdown in 2020 of new projects.
Sales volumes will reduce from 2021 levels, but stay above the average sales volumes for the last 3 to 5 years. 2021 saw the highest sales volumes on record, I don’t think that’s going to happen again this year.
Risks impacting the market
- Inflation becoming endemic: eg continuing for the first 6 months of the year, and maybe longer.
- New Covid strains and Covid still not becoming something we can live with easily and freely.
- Supply chains not freeing up as easily as some believe they will.
- US increasing the cash rate multiple times.
- Share market falling in the US and Australia.
- Australia increasing the cash rate early.
- Russia invading Ukraine.
- APRA stepping in again or government placing restrictions on investors.
- Perth and Melbourne are on the nose due to the Government’s harsh approach to lockdowns in Melbourne and closed borders to Perth causing trust issues for interstate migration.
- Property market moving into negative territory towards the end of the year.
I predict some of the above will occur:
- US rates rising multiple times in 2022.
- Supply chain issues lingering for at least 6 months, if not all year.
- Inflation challenges lingering for at least 6 months, if not the entire year due to the supply chain issues and the amount of new money printed/Quantitative Easing as part of the unprecedented stimulus of 2020 and 2021, that may yet become a new historical lesson to learn for future economists and governments.
- Further measures to curb lending by APRA or to specifically target investors/help first time buyer’s by APRA or government.
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