An all-time record low volume of housing supply, a national economy which has eclipsed full employment and a ridiculous amount of financial capacity for a big critical mass of Australian households… it is a powerful combination for what may lie ahead in 2023/24.
The key question for those reading this report is: ‘do you have the courage to ignore the Negative Neville’s, to focus on the key facts and to do something positive for your future, or will you be among the millions who fall victim to Group Think and remain anchored in the land of mediocrity?’
Table of Contents
1. 2022 Market Wrap
This time last year, capital growth rates well into double-digits were anticipated for Australian property markets in 2022. But significant restraints on global supply chains created a surge in inflation, forcing a change in the RBA’s monetary policy (and a subsequent public apology from the RBA Governor).
Cash rate increases in 8 consecutive months for a combined total of 300 basis points is the sharpest increase that any of us have ever experienced. The frequency of the increases jolted buyer confidence, so the volume of real estate activity produced in the 2022 calendar year was below original expectations.
That said, the generally downbeat commentary about property markets during 2022 is contradicted by the sound results that were produced.
Data released this month by Australia’s official statistician, the ABS, confirms that the cumulative value of Australia’s 10.87 million residential properties had *increased* by 2.3 percent for the year ending 30 September 2022 (to $9,433 billion).
Sydney (minus 7 percent) and Melbourne (minus 5 percent) were a drag on the national figure, but the reality is that house prices across large parts of Australia are between 5 and 15 percent higher at the end of 2022 than the beginning of the year.
To appreciate the widespread opportunities created across the country during 2022, examples of locations that produced double-digit capital growth rates include Adelaide SA, Albury NSW, Armidale NSW, Bairnsdale VIC, Burnie TAS, Busselton WA, Cairns QLD, Dubbo NSW, Hervey Bay QLD, Shepparton VIC, Townsville QLD and Wangaratta VIC.
As happened in 2020 and 2021, the rampant rise in rents that Propertyology predicted heading into 2022 occurred in spades.
Arguably the most important question for every Australian right now is ‘…will those in high places who implemented the poor policies that caused this mess finally find some courage in 2023 and implement new policies that support rental supply?’
2. 2023 Executive Summary
The two terms on everyone’s lips right now are ‘interest rates’ and ‘cost-of-living’.
Frankly, I have zero concern for Australia experiencing a period of widespread distressed real estate sales. Those who suck lemons for a living will never have a smile on their dial.
Contrary to the commentary, many of the fundamentals that drove the 20 percent capital growth in the 2021 calendar year are still here right now. The important missing link is buyer confidence.
The ridiculously tight housing supply across many Australian locations combined with significant household financial capacity are key pillars that ordinarily propel annual house price growth in excess of 8 percent.
But the actual rates of capital growth in 2023 will be significantly determined by the actions of a variety of government departments and how supportive they are for real estate buyers.
Generally speaking, the RBA would be comfortable with a cash rate between 2.5 percent and 3.5 percent. If global supply pressures ease back to acceptable levels in Q1 2023, as anticipated, I think it’s likely that interest rates will flatline from Easter through to the end of 2023.
Either way, RBA will play a big role in buyer confidence in 2023.
Common sense suggests that relaxation of credit policy (APRA), along with state government stamp duties and rental legislation will help to ease the significant pressure on Australia’s rental markets. But common sense is increasingly uncommon when it comes to government policies.
A whopping 155,000 overseas migrants had already arrived in the first 6-months of 2022, after re-opening the international border early in the year.
Given that there is already near zero rental accommodation available, governments still face the choice of either introducing policies that incentivise more rental supply or to continue whacking property investors with the baseball bat, thereby forcing even more people into makeshift shelter and rents even higher.
On the balance of probability, governments will continue to kick the can (rental supply) further down the street in 2023. Make no mistake though, unless they intend gifting 200,000 homes to people for free, they will eventually implement the only sustainable solution to the national rental crisis.
All things considered, 2023 is likely to see a return to near-normal property market performance.
The weakest locations will produce mild declines (between -2% and -5%). Candidates for this category are Ballarat VIC, Ballina NSW, Byron NSW, Canberra ACT, Kiama NSW, Melbourne VIC, Noosa QLD, Surf Coast VIC, Sydney NSW and Warragul VIC.
Sydney and Melbourne continue to have the weakest property market fundamentals in Australia. The graphics within this report contain examples of some key metrics, here’s further research about Australia’s 2 largest cities.
A majority of capital city and regional locations will produce house price growth of between 2% and 7% in 2023.
The strongest capital city property markets in 2023 are likely to be Adelaide and Perth.
As happens every single year, there will be locations which outperform the national norm and they’ll be away from the concrete jungle, among the 400 regional townships.
Related article: 80 locations that outperformed Sydney & Melbourne over the last 20-years
In alphabetical order, locations with the best potential in 2023 are Airlie Beach QLD, Albany WA, Albury NSW, Armidale NSW, Bathurst NSW, Beaudesert QLD, Benalla VIC, Bundaberg QLD, Burnie TAS, Busselton WA, Cairns QLD, Devonport TAS, Dubbo NSW, Echuca VIC, Esperance WA, Hervey Bay QLD, Gold Coast QLD, Goulburn NSW, Griffith NSW, Gympie QLD, Kempsey NSW, Lithgow NSW, Mandurah WA, Maryborough QLD, Mount Barker SA, Mount Gambier SA, Parkes NSW, Port Douglas QLD, Rockhampton QLD, Shepparton VIC, Sunshine Coast QLD, Swan Hill VIC, Tamworth NSW, Toowoomba QLD, Townsville QLD, Victor Harbor SA, Wangaratta VIC, Warwick QLD, Wodonga VIC and Yeppoon QLD.
After an incredibly strong 8-years which produced 130 percent capital growth and an $11,000 increase in annual rents, Hobart’s real estate growth cycle appears to be ending. A period of modest growth is ahead, although local fundamentals are still sound.
SUBSCRIBE to Propertyology’s eNews
Find out more about how to navigate the Australian property market with insights from Australia’s best buyer’s agent and property market analyst by filling out the form below:
3. Current Market Fundamentals
Current market ‘activity’ is very different to current market ‘fundamentals’ and the things which influence future performance.
While the negative drivel in everyone’s device might suggest otherwise, conditions across Australia today are far superior to this time 3-years ago.
In Q4 2019, Australia was teetering on a recession. The unemployment rate was 5.3 percent and wages had flatlined for several years.
House values over the 3-years ending 2019 had declined in Perth and Darwin, and only mildly increased (by less than 15 percent) in 5 of the other 6 capital cities. Hobart (up 30 percent) and various regional locations were among the exceptions to the then norm.
FACTS THAT MATTER
- Population growth: even though the international border was closed for much of the last 3-years, Australia’s population still increased by 700,000 over the period.
- Overseas migration: the government forecast is for 200,000 permanent overseas migrants plus a further 500,000 international students to arrive in Australia over the next 12-months alone, thereby intensifying the core need for housing.
- Housing supply (for sale): this country with 10.9 million residential dwellings currently only has 241,701 listed for sale (just 2.2 percent). The same time 3-years ago, there were 339,000 list for sale (3.2 percent of total dwelling stock). It’s very tight.
- Housing supply (for rent): the 8 million Australians who live in 3.3 million rental properties currently only have 31,924 dwellings to choose from if they need to move home for one reason or another. Available rental supply is currently 58 percent less than 3-years ago. Expect even more people to be sleeping in cars in 2023.
- Housing supply (new construction): 188,000 dwellings approved for construction during this year (only 2 percent are government-owned) is below the decade average of 202,000 per year.
- Home renovations: an average of $11.9 billion in approved residential renovation works over the last 2-years is well above the decade average of $8.4 billion per year. A lot of this approved work will be completed during 2023.
- Internal migration: every single year since internal migration data was first recorded in 2001, more Australians relocate to regional Australia than to capital cities. The rate of migration away from capital cities began to accelerate in 2017. Last year, a net 50,000 people relocated from capital cities to regional Australia.
- Unemployment rate: the current national unemployment rate of 3.4 percent is the best Australia has seen since 1974, meaning that current conditions offer greater employment opportunities than at any time during the working life of everyone who is currently in the workforce.
- Job growth: there are 683,000 more jobs filled in Australia now compared to 3-years ago
- Job advertisements: the economy is so strong and labour supply is so short that there were 526,000 jobs advertised (unfilled) in Australia at the end of October 2022. This is a record high, and 25 percent more than 3-years earlier. This leading economic indicator confirms the biggest increase to be in regional Australia, while Sydney and Melbourne have the softest conditions.
- Wages: the national average wage increased 3.1 percent last year with the rate of growth accelerating in the September quarter to 1.2 percent (the highest in a decade).
- General economy: it is unsustainable for business revenues to continue to accelerate at the pace of the last couple of years, but Australian economic conditions are still likely to remain solid. That said, some businesses will soon get a brutal lesson in the importance of not having too many fixed costs.
- Household equity: the value of a standard house in 130 of Australia’s 150 largest townships is now 40 percent or more higher than 3-years ago, meaning that a majority of households have never been in a stronger financial position. Doom and gloom – pfft.
- Household liquidity: according to the RBA, Australian households had $1,455 billion cash at the end of June 2022 (33 percent more than 3-years earlier).
- Household rents: the asking price to rent a 3-bedroom house over the last 3-years has increased by $100pw or more in 6 of 8 capital cities and even bigger increases in numerous regional locations.
- Household spending: ABS data continues to confirm accelerated household spending, including on discretionary items such as restaurants, hotels, clothing and footwear. The facts defy the public sooking about ‘cost of living pressures’.
- Inflation: inflation was frequently above 10 percent throughout the entire decades of the 1970s and 1980s, making it laughable that some people have been groaning about 6 percent in 2022. Regardless, the widespread opinion is that the global supply pressures which are primarily responsible for recent inflationary pressures are expected to ease significantly in H2 2023. Build a bridge.
- Home loan arrears: Credit ratings agency S&P recently revealed Australian mortgage arrears in September 2022 remained at “post-GFC lows”. Despite the sharpest hike in interest rates on record, home loan rates are still relatively affordable and a piddly 0.58 percent of borrowers are in arrears. I guess that’s not dramatic enough to create a media headline.
- Buyer activity (sales volumes): the annual average number of properties that have changed hands in Australia over the last 20-years is 460,000 (in 2019 it was 405,000). Despite rising interest rates, 600,000 real estate transactions occurred this year. Downturn?
- Infrastructure investment: an all-time record high project pipeline worth $120 billion is slated for the next 10-years. Not exactly sounding like ‘Struggle Street’, is it?
- Overseas visitor spending: while the international border was closed, Australian businesses missed out on the circa $50 billion annual revenue from more than 10 million international visitors. Things are now trending back in this direction.
POLICY SETTINGS
- Monetary policy: like sunshine and rain, what will be will be regarding interest rates (now and always). On the balance of probabilities, the RBA will keep their powder dry in 8 or 9 of the 11 Board meetings that they hold in 2023. Buyer confidence will increase once the Australian public senses rate rises are behind us. With the cash rate now above 3 percent, the silver lining is that the RBA has significant arsenal for whenever the next moment of economic fragility arises. Glass half full.
- Credit policy: the current loan assessment rate buffer of 3 percent, along with a few other overzealous conditions imposed on property investors, is significantly more conservative than what Australian credit policy has been at any time in living memory. Any future change to credit policy by APRA must be to loosen the grip, particularly in support of suppliers of rental accommodation.
- First home buyer support: recently released federal government policies enable eligible lower income-earners to purchase a home with just a 2 or 5 percent deposit and no mortgage insurance. The federal and some state governments also offer a ‘shared equity scheme’, supporting housing demand.
- Investor support: Since 2015, the animals have been left to run the zoo, causing the biggest rental crisis in this nation’s history. Federal, state or local, which government/s have the kahoonies to do the right thing and ease pressure on rental markets through introducing policies which support rental suppliers? Who is bold enough to challenge the status quo and help small business fill countless vacant jobs by incentivising the provision of more rental accommodation?
- Stamp duty: potentially the most influential real estate policy in 2023 will be the newly released First Home Buyer Choice in NSW wherein, instead of having to save an extra $40,000 to pay stamp duty on a $1 million Sydney property, a first home buyer can enter the market by paying a $1,900 annual property tax. Time will tell the level of extra buyer activity in NSW along with whether other states follow suit with similar policies.
- Other property taxes: beware the state government budget pressures. As seen with the recent Queensland government land tax fiasco, real estate has long been a go-to political revenue raiser.
OTHER INFLUENCES
- Work-from-home: from 1 in every 20 jobs in 2016, to 1 in 5 jobs in 2021, the work-from-home way of life is the single biggest structural change to impact Australian society since World War II. Those who think WFH will be just a short-term fad are seriously delusional.
- Lifestyle movement: a higher volume of home renovations with more elaborate creature comforts, a thirst for a stronger connection with natural environments, and greater appreciation for regional living will be prominent for a generation or more.
- Construction industry: I anticipate a significant increase in the volume of insolvencies in the construction industry. And insufficient skilled labour will continue to curtail supply of new housing stock.
- China: their actions will always be largely unpredictable, but the volume of goods and services that the world’s largest country purchases from Australia will continue to influence property economics.
- India: just this month, Australia entered into a new trade agreement with the world’s second largest country, India, creating potential for a significant economic boost in Australian locations that export agriculture, mining and education.
- Blue-moon events: war, natural disasters, cyber-attacks, stock market crashes, health pandemics… there is usually something that comes from left-field each year. But decades of history is proof that Australian real estate is incredibly resilient.
There were signs during Q4 2022 that Australians were starting to accept the interest rate ‘new normal’.
The recent public apology from the RBA is significant.
Auction results were stable.
Resale stock listing volumes during Spring were well down on historical averages, meaning total supply volumes continued to be tight in many parts of Australia.
Australia’s Number 1 real estate portal, realestate.com.au recently reported record-high search engine activity from foreigners looking to buy and rent during the 4-months ending October.
4. In A Nutshell
History is proof that the human race has ‘mastered’ the skill of obsessing on a few so-called ‘negatives’ of a moment in time. History also leaves footprints of proof that property markets commonly produce much better performances than the negative rhetoric initially suggested.
As proven in this property market research report, conditions right now are significantly better than the media commentary suggests.
Job growth, wage growth, high household liquidity and the highest ever household equity. The cost of money is still relatively cheap. Australia has not seen a stronger collection of financial capacity metrics than this.
Lots of people want to either upgrade their home or invest, but they have they sat with their hands in their pockets in 2022. Sometime soon they’ll gain the confidence and get on with their life.
Current sentiment and conditions are a bit like when COVID started. Uncertainty back then kept people on the sidelines for a period of time. When they realised things were ok and got on with their life, they found themselves transacting in a real estate environment with very low housing stock for sale, so property prices soared.
This time around the uncertainty comes from different sources, interest rate commentary and heavy-handed rental legislation. With the exception of a few locations, including Sydney and Melbourne, there’s even fewer properties for buyers to choose from now compared to a few years ago.
Most of the public don’t realise it, but the underlying pressure in property markets is significant.
As I said at the beginning of this report, those with the courage to ignore Group Think will be the ones who prosper most.
Choose your own path. Here’s proof that I’m all chips in.
Propertyology are national buyer’s agents and Australia’s premier property market analyst. Every capital city and every non-capital city, Propertyology analyse fundamentals in every market, every day. We use this valuable research to help everyday Aussies to invest in strategically-chosen locations (literally) all over Australia. Like to know more? Contact us here.
Here’s how we combine our thought-leading research with Propertyology’s award-winning buyer’s agency services.
5. About The Author
Simon Pressley is founder and managing director of Propertyology, and a Hall of Fame Inductee of Real Estate Institute of Australia.
Simon is a graduate of Australian Institute Company of Directors.
Other tertiary qualifications including property investment advisory, financial planning and finance broking.
Having studied Australian real estate history to the nth degree, Simon has an intimate understanding of the complexities of property markets, the machinations of the numerous inputs, and the knock-on effect that human actions have on property markets.
There is no university degree or training course which teaches these things.
During the onset of COVID-19 in March 2020, every single bank and a big bunch of economists were predicting the biggest downturn in Australian real estate history, yet Simon was the only person in Australia to correctly predict that property markets would actually boom and that it would only take a few months for that to occur [refer here].
The below graphic contains a visual summary of some of Simon’s other thought-leading forecasts.
Immediately prior to analysing national property markets full time, Simon gained invaluable experience at the real estate transaction level as a buyer’s agent. With the skills and appropriate licences to operate in five (5) different states, Simon was recognised as Australia’s Buyer’s Agent of the Year in three (3) consecutive years and subsequently inducted into the Real Estate Institute of Australia Hall of Fame.
Simon has recruited, trained and developed a team of buyer’s agents that have helped everyday Aussies to invest in real estate in nineteen (19) individual cities and towns across Australia.
Prior to pursuing a career in real estate, Simon gained valuable knowledge about banking, finance and credit. A 10-year career with Commonwealth Bank of Australia included roles in assessing credit applications, a broad appreciation for commerce, and understanding the consequences of borrowers defaulting on credit.
Subsequent to CBA, Simon owned and operated a mortgage broking business. In 2004, Simon was awarded Australian Mortgage Broker of the Year Award.
Called upon most days by different segments of the media, Simon’s objective and often very direct commentary on property market matters are featured in print, radio and television. He is also happy to consider requests for being a keynote speaker at events.
