Is the Australian property market growing in 2022?

Top property analyst Louis Christopher forecasts the growth of property prices in Australia to rapidly slow in the second half of 2022, although it will be city dependent.

On the back of a massive property boom in 2021, the highly respected property expert shared his predictions with KnowHow’s Bushy Martin on RealtyTalk onto the Get Invested podcast.

Louis drew upon his team’s latest annual Housing Boom & Bust report, which interestingly contrasts many other predictions circulating.

According to the report, The Australian property market, particularly capital city dwelling prices, will continue to rise and peak over the next few months, before this growth slows down significantly in the second half of the year. However, the level of growth will vary across the country, with Brisbane expected to record the largest selling price rise while Sydney and Melbourne will experience the greatest falls.

“The forecast for 2022 is that dwelling prices will flatline effectively. The forecast is somewhere between 0% and 5% gains, but it’s very much city dependent,” Louis said.

“So they range from being most positive on the Brisbane housing market, where we believe housing prices will rise somewhere between 8% to 14%, to our research being most negative on the Melbourne housing market, where we think housing prices will fall somewhere between -3% to maybe plus 2%. So that’s a net result where we think the Melbourne market will rise in the first part of the new year, but then for the remainder of the year the market is likely to fall. And so we get this net result range.”

Expanding on this, Louis explained the prominent interstate migration flow into Queensland, due to relatively good housing affordability compared to Sydney and Melbourne, will lead to rising house prices.

“The 8% – 14% rise in Brisbane still represents somewhat of a slowdown on the market, where prices rose by about 22% in Brisbane for 2021. But that’s still pretty strong gains if we are proven to be correct,” Louis said.

“The number one reason why we’re most bullish on the Brisbane market is interstate migration flows. So throughout the course of COVID for 2020 and 2021, Queensland enjoyed very strong interstate migration flows, predominantly out of Victoria and New South Wales. It’s fair to say that Queensland has been perceived as being the state which has handled coronavirus the best. It’s been a state where there’s been less restrictions, but only because there’s been effectively no COVID. And I think people are looking to Queensland as a state to move to with the view that it will be well-managed going forward.

“On top of that, Queensland is enjoying an affordability game. Yes, Brisbane house prices have risen substantially, but Sydney and Melbourne house prices have risen a lot more in many respects over recent years. And so there is such a huge affordability gap between the three cities in Brisbane’s favour, and we think affordability is a significant issue right now, particularly surrounding freestanding houses. So we think this will also be a major catalyst for people moving north to Queensland.”

There are several key drivers which determine the 2022 forecasts nationally. This includes the decisions made by the Australian Prudential Regulatory Authority (APRA).

“They have a significant influence in terms of what the banks can and cannot do on the home lending front,” he said.

“In November 2021 we had further action from APRA and that action was revolving around a serviceability test. Could borrowers afford an interest rate of say 6% or 7%? Could they still afford their loan? So they increased the serviceability test there, and we believe that APRA may well intervene again in the first half of this year in the marketplace, potentially lifting the serviceability test once more or having additional action just focussed on property investors, as they have done in the past.”

Louis followed on with the second driver of the housing market, which will be inflation.

“So our forecast is that we’re likely to see an acceleration and an inflation rise of somewhere between 4% – 5%, starting off at 3%, but accelerating. Now historically, when we’ve seen a rise in inflation, that’s actually generally been good for housing prices because property investors or investors, per say, are looking for a hedge against inflation. And historically, property has been a good hedge against inflation,” he said.

“But how would the Reserve Bank of Australia respond to that type of environment? Would they lift interest rates if we were to see an acceleration in inflation? Now as the year came to a close in 2021, the RBA made it clear that they didn’t think they were going to lift rates in 2022. They wanted to see more information come through … But if they do have to lift rates that naturally will have potential negative ramifications for the housing market.”

A rise in wages is also key to the rise of interest rates and the impact of inflation on serviceability tests.

“The Reserve Bank of Australia has made it very clear they want to see wage acceleration first before they lift interest rates. Now whether that plays out or not, that’s another matter altogether. I think there are some shortages in the labour economy and I think they will feed through, but that’s just my view. If they don’t, there potentially could be some negative ramifications for the housing market,” he said.

“So if you see inflation hits like 5%, but wage growth stays behind inflation, that actually has ramifications for the new serviceability tests that we’ve got with the banks. This is because it means that your disposable income starts to drop away because you’re having to spend a higher percentage of your income on goods and services where the prices have gone up. Yet, you’re not really getting a significant wage rise to cover for those rising rising living costs.”

Listen to the full interview here.

Want to Know How you can build wealth with property and finance? Talk to the team at KnowHow, now.

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