Understanding The Current Australian Property Market: The Next Chapter

Those looking to enter the property market have one question in mind: what does the market look like over the next year? So far in 2022, we have seen the property landscape begin to transition from one of unprecedented growth to one of flat values, particularly in the largest cities of Sydney and Melbourne. Here are some of the key trends starting to emerge.

The Slow Down

From mid-2020, Australia’s property market experienced extraordinary levels of price growth. Now, we are finally seeing signs of a slowdown. Looming interest rate hikes and inflationary pressures are proving the main drivers in buyer and sellers’ property journeys. Confidence is starting to wane, putting downward pressure on prices as the market suddenly loses momentum. Most of Australia’s capital cities are expected to see property prices drop following continued rate rises by the Reserve Bank of Australia (RBA).

In the first week of June, the RBA lifted the cash rate by 50 basis points to 0.85 per cent – the biggest increase in 22 years – exceeding many economists’ initial predictions. As banks and lenders pass on the rise in full to consumers, and borrowing costs rise, property prices are likely to slide. Domain reported an auction clearance rate in Sydney of 53 per cent (June 11, 2022), down from 70 per cent this time last year, indicative of cooling buyer sentiment. A quarter of listed Sydney properties were withdrawn from auction in May, revealing seller apprehension and a disparity between buyer and vendor price expectations.

Australia’s biggest lender for home loans, Commonwealth Bank of Australia, is now predicting a 15 per cent property price drop over the next 18 months. “Prices in Sydney and Melbourne are anticipated to decline by more than the other capital cities,” said Gareth Aird, head of Australian Economics at CBA. “But context is key. Price gains in 2021 nationally were extraordinary. And therefore a contraction in dwelling prices is a natural response to rising interest rates given it was record low interest rates that drove the phenomenal lift in prices in 2021,” he said.

Not All Markets Are Created Equal

Dwelling values in Australia are up 14.1 per cent over the past 12 months, down from a peak of 22.4 per cent in the 12 months to January 2022. Key lifestyle areas including Queensland, Adelaide, regional NSW and Tasmania are still seeing solid growth, while luxury properties at the top end of the market are seeing the biggest declines.

Brisbane saw the highest annual growth rate at 27.8 per cent. Affordability constraints continue to mean many are priced out of the Sydney and Melbourne markets, while the smaller capital cities are slated to perform well. The migration north to South East Queensland will continue through the next year, as millennials from Victoria and NSW are drawn to the Sunshine State’s affordability and covetable coastal lifestyle. According to the 2022 federal budget, Queensland will welcome roughly 130,000 interstate residents within the next five years. Regional and peripheral areas are also outperforming capitals, with many Australians still choosing to work from home and favouring more space with big backyards.

Rising Rents

Unlike house values, the rental market remains high across Australia, surging at the fastest pace in 13 years. National vacancies are at their lowest levels since 2006 – falling to just 1 per cent across the country – with fierce competition and diminishing supply. Over the past year, rents across the combined capitals increased nearly 15 per cent for houses, and 11 per cent for units, according to SQM Research. Rental prices for both houses and units are expected to climb through 2022, particularly with the return of foreign students and international visitors. Those looking to purchase an investment property can expect strong returns through the next year.