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What can we really expect from our property markets in 2022?

While have seen some wild predictions being thrown around in media headlines, the reality may be different from what you expect.

Following a year where house prices had their largest annual rise in 30 years1 (21%) amid all the challenges of a global pandemic, Virgin Money Australia’s Chief Economist Peter Munckton shares his top property predictions for 2022.

Prices won’t cool as much as expected

While many commentators feel that affordability issues and rising interest rates will stall property price growth,  Mr. Munckton said…

“I expect house prices over the next couple of years to be a little stronger than the general consensus.”

Price Up“House prices were up strongly across Australia in 2021, with all major cities achieving double-figure growth, and historically, big house price rises one year don’t necessarily mean a smaller rise, or even a decline, in the following year.”

“What drives house prices isn’t what happened the previous year but factors such as interest rate movements, the availability of finance, the underlying demand and supply for houses, affordability and confidence in the outlook for house prices – and these conditions are still just right.”

However, Mr. Munckton notes…

“Momentum of house price growth did slow over the final four months of 2021, which makes it likely that growth in 2022 will be comfortably below the pace seen last year.”

Keep your eye on the cash rate

Of course a lot will depend on what the RBA does with interest rates and with rising inflation there is now the suggestion that rates may rise later this year or next year.

Mr. Munckton explains….

Cash Rate“Actual declines in house prices often coincide around the peak of the cash rate, which financial markets predict to be in 2024-25 at around 2-2.25%, however, I believe the peak in the cash rate will be above current financial market pricing.

“This suggests house prices may decline for a period sometime around 2024, and more generally, will likely see a run of years with less rapid house price growth beyond 2022.”

Affordability may push people to state ‘hop’ to better value cities

With regards to the affordability constraints caused by the steep rise in house prices over the last year Mr. Munckton commented…

“With interstate borders re-opening, cheaper housing may again be an important reason why people move regions.

“Relative to Sydney, the average house price in Hobart is expensive by the standards of the past 40 years.

“Melbourne and Canberra house prices are mid-range relative to Sydney over the past 50 years while Brisbane, Adelaide, and Perth appear cheap.

“Affordability is determined by the proportion of income spent on meeting mortgage payments, and by that measure, Sydney is the most expensive, followed by Melbourne, Hobart, Canberra, Adelaide, and Brisbane, while the least expensive are Perth and Darwin.

“Value and affordability both suggest house prices in Brisbane and Adelaide may rise by more over the next two to three years.

“The same factors suggest that Sydney and Hobart could have the slowest house price growth, Melbourne and Canberra are likely to be somewhere in-between, while Perth and Darwin housing markets currently offer the best value.”

Some cities to feel the supply pinch.

Of course there isn’t one Australian property market and local factors will affect how each market performs. Mr. Munckton commented…

“One indicator that considers both demand and supply is the ratio of the annual change in state population relative to the 12-month sum of building approvals.

Demand And Supply“Pre-COVID, that ratio was at a cyclical high for all states (except NSW) suggesting that not enough housing was being built for the growth of the population.

“Since then, approvals have gone up and population growth has slowed sharply – as a result that ratio is now at or close to record lows for most states.

“That suggests supply will weigh on house prices across all states at some stage over the next couple of years.

Victoria, particularly Melbourne, could be the most affected.

“The ratio is at its highest in Queensland suggesting it might be less impacted by supply than the other states.”

Demand: To buy or not to buy

“In terms of demand, buyer activity is expected to be up year on year due to so much of 2021 being affected by lockdowns and buyers and sellers ‘waiting to see’.

Property Demand“More investors will re-emerge in 2021 in search of income and capital growth.

“The proportion of households’ disposable income going to meet interest payments is at its lowest level ever, and households have run up a huge level of savings over the past couple of years.

“While property prices are at record highs, interest rates are still historically low, and the high amount of savings that many didn’t have before the pandemic will propel first home buyers into action.”

“Competition in the home loan market will continue to benefit consumers looking for a good deal.

Many lenders, including Virgin Money Australia, have sharpened home loan rates to attract and retain customers.”

ALSO READ: Why 2022 is the WORST time to buy property



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