"There are really great insight in the article below. Trend number 2 sticks out to me as it puts greater importance in doing your own research and surrounding yourself with property experts who know the area." - Matthew Lapish, Senior Investment Analyst
We experienced a wild ride in property in 2021, didn’t we?
So, what’s ahead for our housing markets in 2022?
While our property markets are slowing down as the year ends, there is still significant momentum, and the main factors which will determine what happens to property next year will be what the RBA does to interest rates and if APRA tightens the screws further on lending.
But despite the best-made predictions, if history has taught me anything, it is that there will be a hit by an unexpected X factor coming out of the blue to undo the most seasoned property forecasts, either on the upside or the downside.
However, let’s look at eight property trends I expect to happen in 2022.
1. Property values will continue rising
While many factors affect property values, the main drivers of property price growth are consumer confidence, low-interest rates, the availability of credit, economic growth, and a favourable supply and demand ratio.
As always, there are multiple real estate markets around Australia, but in general property values should increase throughout 2022, but at a slower rate of growth than 2021.
One of the leading indicators I watch carefully is housing finance approvals, and these are still at very high levels suggesting that many Aussies are still looking at getting into property, meaning we will have continuing strong ongoing demand from owner-occupiers and investors in 2022.
With the increase in value of houses strongly outpacing the apartment market recently, now with the differential in price between units and houses at the highest level on record, and with houses becoming more unaffordable for many, I can see strong capital growth ahead for family-friendly apartments in great neighbourhoods.
Even apartments in the CBD towers and accommodation around universities should pick up as immigrants and students return, however, these never really made good investments and I would steer clear of them.
Rents should also keep increasing in 2022 as there is a desperate shortage of good rental accommodation around Australia.
2. We’re in for a 2-tier property market moving forward
While most property markets around Australia have performed strongly so far this cycle (other than the inner city of high-rise apartment market), moving forward the rate of property price growth will slow and there are several reasons for this including:
- Affordability issues will constrain many buyers. The impetus of low-interest rates allowing borrowers to pay more has worked its way through the system now and with property values being 20- 30% higher than at the beginning of this cycle at a time when wages growth has been moderate at best, and minimal in real terms for most Australians, this means that the average home buyer won’t have more money in their pocket to pay more for their home.
- The pent-up demand is waning – While there are always people wanting to move house and many delayed their plans over the last few years because of Covid, there are only so many buyers and sellers out there, which will lead to fewer people looking to buy in 2022.
- Our financial regulator APRA is intent on slowing our markets using macroprudential controls.
Together these factors will lead to a two-tier property market – in other words, not all locations will grow at the same rate moving forward.
I can see properties located in the inner and middle-ring suburbs, particularly in gentrifying locations, significantly outperforming cheaper properties in the outer suburbs.
While the outer suburban and more affordable end of the markets have performed strongly so far, as I explained affordability is now becoming an issue in these locations.
More than that, Covid19 has adversely affected low-income earners to a greater extent than middle and high-income earners who are have recovered their income back to pre-pandemic levels more quickly, while many have not been hit at all.
And as we start to emerge from our Covid Cocoons there will be a flight to quality properties and an increased emphasis on liveability.
As their priorities change, some buyers will be willing to pay a little more for properties with “pandemic appeal” and a little more space and security, but it won’t be just the property itself that will need to meet these newly evolved needs – a “liveable” location will play a big part too.
Those who can afford it will pay a premium for the ability to work, live and play within a 20-minute drive, bike ride or walk from home.
They will look for things such as shopping, business services, education, community facilities, recreational and sporting resources, and some jobs all within 20 minutes reach.
3. Our economy will pick up
With the prolonged lockdowns in Australia’s two largest cities keeping people indoors and spending less, households have squirrelled away an estimated $200 billion this year.
As life returns to normal much of this will be spent over the next few years in an economy-boosting wave of consumption.
Some of it will go to paying down debt and some will go into buying assets.
We’re already seeing this in retail spending, and it’s been apparent in our property markets throughout the year as many homeowners upgraded.
4. The “official” interest rate will remain unchanged
In my mind, the official RBA interest rate is likely to remain unchanged throughout 2022.
Australia’s economy is still operating below its potential with economic growth and wages growth not strong enough to justify an interest rate increase.
Remember, current interest rates are at stimulatory levels and the Reserve Bank will only raise interest rates once these low rates have done their job and once the economy is bounding along and wages growth has remained strong for some time.
Currently, the positive signs of jobs creation, falling unemployment, and rises in full-time employment are being offset by slow wages growth; and if 200,000+ more skilled immigrants arrive in Australia as planned by the government, this will help fill the job vacancies and dampen wages growth.
However, I would not be surprised to see banks raising interest rates “out of cycle” as their cost of funds increases, as has already happened with many fixed interest rates over the last year.
5. APRA is likely to tighten its macro-prudential measures
APRA has only really tapped its foot on the brake pedal; it hasn’t really pushed down hard on the brake to slow our markets down, so if the property markets continue growing too fast for their liking they are likely to introduce stricter measures.
Hopefully, they will have learned lessons from their past mistakes and remember that under their watch in 2017-8 the stricter bank lending criteria they instigated created a “credit squeeze” which didn’t just slow the markets down but stifled the property markets for quite some time.
6. A fight for quality
During the last few years, FOMO (fear of missing out) led inexperienced investors and homebuyers to purchase almost any property that their budget would allow and they were fortunate as a rising tide lifted all ships.
But as the market matures we will see a flight to quality with well-located A-class homes and investment-grade properties still selling well, but secondary properties having trouble finding buyers.
7. More property investors will return to the market
So far this property cycle has been driven by owner-occupiers and first home buyers, but now more and more investors are getting in the market.
Of course, this always happens after a period of strong housing price growth when a whole new generation of investors learns how well others have done by owning property.
However, if history repeats itself, and it most likely will, many of these investors will sell up over the next few years as they realise that property investment may be simple, but it’s not easy.
8. Here’s something I can guarantee will happen in 2022
The property pessimists will still be out there next year telling us not to invest and that our property markets are going to crash.
And as has been the case for the last few decades – they will be wrong.
The bottom line
Clearly, many of us would like to forget the last few years, but that won’t be easy. Let’s hope 2022 will be a year we are going to want to remember.
It will be interesting to look back at the end of the year and see how many of these trends have eventuated.
And with these forecasts of subdued growth, I can understand why some would-be investors may be questioning whether property still represents a smart investment.
On the other hand, strategic investors who have a long-term outlook will see the period of slower growth as a buying opportunity.
Sure, investors may not see annual double-digit capital growth in the short term; but the slower markets will give smart investors an opportunity to buy the type of property they’d have to compete more strongly for over the last few years when there were more buyers than sellers.
The type of property that will have them looking back in 10 years’ time saying “boy I bought that cheaply!”
Source: Property Update