We now have a more equitable supply and demand situation which will calm the dizzy heights of 2021 and create a more balanced property market. Annual appreciation of 20% is naturally unsustainable. Regional areas will continue to grow in popularity for homeowners and investors due to the ability to work from home, less traffic, larger land holdings, cheaper house prices, low rental vacancy rates and cleaner air. Population growth for the regional areas was greater last year than within Melbourne. There is still ample demand for property and prices will continue to appreciate but I do agree that for the million plus buyers who have never experienced a rate rise (2010) the expected variable rate of 3.64% by the end of next year, for some will be painful especially those coming out of a 3 year fixed term.
I am bewildered as to why the RBA had previously forecast that interest rates would not increase until 2024. I feel for the thousands of borrowers who based their calculations on this advice. A rise in interest rates to 1% (predicted by the end of 2022) on a $500,000 loan, would see a monthly increase in repayments of $275.00 and $560.00 with a 2% increase. Interest rates were inevitably going to climb, and it would be unwise to think differently. Up to eight rises in 2 years however is a lot to consider. The unpredicted inflation appreciation closing in on wage growth and unemployment the lowest it has been for 50 years at 4% is certainly a surprise. Hindsight is a wonderful thing but surely rates could have edged northwards sooner, if not to sedate the ferocious property market, then to accustom lenders to some future reality.
The banks are predicting a 10-15% fall in the property market. However, economists appear to be predicting a modest price appreciation in 2022 and a fall in 2023 of 6%. The quarter just passed has only witnessed a disappointing 0.1% percent increase in house prices. In contrast there was a 5.8% increase in the same quarter in 2021. Regional areas have increased 4%. I anticipate the property market in Victoria will see a modest gain this year and flat line in 2023, picking up in 2024. Brisbane, Adelaide and Hobart will continue to show steady growth through the coming years maintaining annual growth of around 5%.
In the foreseeable future we will continue to experience major issues prohibiting businesses operating at full capacity as a by-product of the pandemic. I can’t imagine this being rectified easily in the short term, and it will undoubtedly influence sectors of the economy moving forward. The property market will have much to deliberate with a Federal Election announced for the 21st of May.Wishing you a safe and happy Easter break and please contact us anytime with any property queries in between those Easter eggs.
Michael Ramsay
Principal
The Advocates