FOLLOWING strong housing market conditions during 2020-21 last year proved to be a tumultuous year for the housing market.
Interest rates rose rapidly, resulting in price falls and a reduction in sales volumes.
While prices for properties for sale have fallen, rental prices have grown on the back of escalating demand from overseas migration and fewer first-home buyers.
The insufficient supply of rental stock has afforded landlords the scope to lift rents.
With market conditions changing so rapidly, what are the most pressing issues for the housing market in 2023?
Interest rate hikes
After interest rates had spent the past 11 years doing nothing but getting lower, inflation finally re emerged in 2022, leading to rapid increases in interest rates.
The cash rate was 0.1% at the start of May 2022 when the RBA decided to lift interest rates by 25 basis points.
Between May 2022 and December 2022, official interest rates climbed 300 basis points.
Looking ahead to 2023, we expect that interest rates will initially continue to climb but it seems likely that somewhere between March and May the RBA will pause its hikes.
Research shows that changes to interest rates take between one and two years to fully impact the market.
We’ve had many rate hikes in a short period of time so we expect that we are close to the end of the rate hike cycle, but the impact from previous rate rises will be felt well into 2023.
Will prices stop falling?
When we consider how quickly interest rates have increased and how much borrowing capacities have reduced as a result, the decline in prices has been moderate to date.
The change in prices seen throughout the pandemic was one of the strongest periods of property price growth on record, so it makes sense we’re now seeing some of those gains reversed.
We expect that property prices will continue to decline throughout 2023 on the back of additional interest rate increases, further reductions in borrowing capacity, and a slowing of the overall economic environment.
If interest rates were to fall in 2023, the outlook for property prices would change.
However, we see this as unlikely, and if interest rates were to fall, it would likely happen late in the year.
How high will rents continue to rise?
Unfortunately for renters, the ongoing lack of supply is expected to result in further increases in the cost of renting.