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Will The Australian Property Market Roller Coaster Finally Crash

Delve into the rollercoaster journey of the Australian real estate market, from a 2020-2021 boom to a 2022 downturn, and the hopeful signs of recovery in 2023.

Understanding the Boom: 2020-2021

The Australian property market, a dynamic and integral part of the economy, saw an unprecedented boom during 2020 and 2021. An increase in property prices during this period played a pivotal role in shaping the sector. Does this surprise you? Well, market trends can often spring surprises.

The Significant Fall: The 2022 Downturn

However, 2022 saw a major shift as property prices began to plummet significantly. The fall was attributed to the Reserve Bank of Australia (RBA) lifting the cash rate, thereby making mortgages more expensive. This resulted in a 5% drop in property values across the capital cities. It’s like a seesaw, isn’t it? When one side goes up, the other must come down.

Sydney and Melbourne: Major Cities Take the Hit

The downturn hit hardest in Sydney and Melbourne, with property values falling by -10.9% and -5.9%, respectively. Canberra and Brisbane also felt the impact, with house values falling by -6% and -1.1%. Although these drops were significant, they did not constitute a crash, which typically involves a massive loss in value and mortgage serviceability.

The Role of Reserve Bank of Australia (RBA)

The RBA played a significant role in this downward spiral by increasing the cash rate in response to high levels of inflation. This change negated the primary factor that had earlier driven the housing market boom.

Signs of Recovery: 2023 Onwards

Despite the downturn, 2023 brought signs of hope and recovery to the Australian property market. CoreLogic’s Home Value Index noted a slight rise of .6% across all capital cities in March and a lift of .5% in April. This was the first increase in almost a year.

Influencing Factors: Net Migration and Stock Shortage

This recovery seems to be influenced by a combination of net migration and a shortage of stock, showing that supply and demand are key players in the property market game.

Predictions: The Future of the Australian Property Market

As we venture into the unknown future, several predictions have surfaced regarding the future of the Australian property market.

Expert Insight: Kilroy's Views

One expert, Kilroy, predicts that the cost of debt will be a significant factor in the future. She suggests that property prices may rise when interest rates begin to fall, which could occur in either the last quarter of 2023 or the first quarter of 2024. However, she does not anticipate a return to previous highs in the short term.

Broad Forecasts: Nationwide Prospects

Other forecasts predict an 11.5% peak-to-trough price fall nationwide, with Sydney expected to see the greatest fall of around 18%. Meanwhile, Perth may see a more modest 4% drop.

Revised Forecasts: The Changing Outlook

Interestingly, some revisions to these forecasts are less pessimistic. For instance, ANZ downgraded its prediction of a peak-to-trough fall from 16% to 10%. The big four banks also revised their initial housing price predictions in May, indicating that the market might have bottomed out.

Risks in the Australian Housing Market

While there’s hope for the future, it’s crucial to remember that the Australian property market still carries significant risk.

The International Monetary Fund (IMF) Warning

The International Monetary Fund (IMF) has ranked Australia as the second-highest country behind Canada for “housing market risk” out of 27 countries, largely due to its high level of outstanding housing debt to income.

Conclusion

In conclusion, the Australian property market has experienced quite a rollercoaster ride over the past few years. Although the journey has been rocky, signs of recovery are emerging. However, only time will tell the true impact of these shifts on the property market. Stay tuned for what the future holds.

Contact us today to learn more about our innovative investment strategies and embark on your journey towards financial success.

FAQs:

1. What caused the boom in the Australian property market in 2020-2021?

Low interest rates, government incentives like HomeBuilder, limited housing supply, and robust demand amid COVID-19 recovery contributed to the Australian property market boom in 2020-2021.

2. What factors led to the fall in property prices in 2022?

The 2022 property price drop was primarily driven by global economic instability, higher interest rates, tightening of mortgage lending standards, and increased housing supply in certain markets.

3. How did the Reserve Bank of Australia (RBA) influence the property market?

The Reserve Bank of Australia influenced the property market by adjusting its main interest rate. In response to a rebound in property prices, the RBA increased the cash rate to an 11-year high of 3.85%. This followed a pause to assess the economic outlook, during which they observed housing prices responding to changes in the interest rate outlook. The RBA also tracks rental prices closely, considering them in their policy decisions.

4. What are the signs of recovery in the Australian property market in 2023?

Signs of recovery in the Australian property market in 2023 include rising property prices, suburbs with the biggest downturn leading the sale price recovery, and expectations of reaching the pre-pandemic peak. Low stock levels, rising rents, and increased demand due to higher immigration have also helped​.

5. What are the future predictions for the Australian property market?

Predictions for the Australian property market in 2023 are cautiously optimistic with expectations of stabilizing interest rates. House prices may soften further, but severe falls are unlikely if the Reserve Bank of Australia (RBA) refrains from more significant rate hikes. Sydney maintains the most expensive properties, while Perth may offer good value. First home buyers and investors are likely to return, buoyed by rental yields and incentives. The first half of 2023 may see some price falls, but recovery is anticipated towards year-end. For Future predictions visit CoreLogic.

Contact us today to learn more about our innovative investment strategies and embark on your journey towards financial success.

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