It is fair to say that there has been diverse commentary on the state of the property market. As recently as last month experts predicted prices would fall 5-10% this year and 8% in 2023. Now the consensus is that prices will soften 15% this year and next year with some predicting a recovery of 5% in 2024. With poor consumer confidence, there is little doubt that in the middle of next year all roads will lead to the strongest resistance for property appreciation. Interest rates will be in the vicinity of 2.5%, inflation hovering around 6%, GDP to be lower than the predicted 2.3%, which could in turn increase unemployment and the accumulated household savings of $270 billion nationally during covid will be seriously diluted through the extreme increases in cost of living. Most influential will possibly be the $131 billion in fixed rate loans due to expire mid next year. Those carrying a $600,000 mortgage who refinance, will need to find a further staggering $700-$900 a month. With the cost of fuel, paying staff above award rates to hold them and costly school fees, I see this as where the housing market will be hit hardest. The needless delay in the cash rate increases has necessitated a sledgehammer approach by the RBA which will see incredible hardship on families in the latter half of 2023. Median house prices may well decline by 8-10% this year, and this could possibly be duplicated in 2023. However, if you take in the gains of 30-40% since COVID began, the situation is not so dire. Auction clearance rates of 55% are considered low, but with a change of government, consequences of the Russian invasion in Ukraine and the increase of private sales, this result could be worse. Regional areas are holding their own and I have not witnessed any substantial change. You cannot expect havens such as Point Lonsdale to increase 40% per annum year on year. Overall, the market throughout regional Victoria is stable. The apartment market is faring better than the house market, but then it hasn’t benefited from the extraordinary growth.
In my opinion, I would pay down as much of your mortgage as you can, especially if you are in a fixed rate loan. Invest in regional Victoria (or Adelaide – no decline there so far), and prepare yourselves for a bumpy ride which, as we have seen in the past, will return to some normality in time.
Michael Ramsay
Principal
The Advocates