Well, I certainly didn’t mince my words in the title, but for good reason.
It’s the $9.5 billion question on property owners’ lips around Australia… What will happen to property prices in 2023 and beyond?
If you’re not in the market after 2023, you may never be. It’s no secret that Australia’s in the midst of a raging debate on housing affordability and how the average family can afford to buy their own home.
The vast majority cannot afford to buy their forever home but CAN afford to invest. More on that a bit later.
Small Window of Opportunity
If you haven’t been able to break into the property market, or perhaps you’re looking to build a property portfolio and haven’t reached your investing goals yet, I have good news for you.
Right now and throughout 2023, there will be a small window of opportunity to enter the market under the following conditions;
- Stable interest rates
- Flatlining home prices
- Availability of good stock and potential discounts and incentives
- Low unemployment rate
- Growing wages
- Billions spent on infrastructure
As we all know, Australians love to buy real estate, and for anyone who may have been hiding under a rock for the past two years, Australia has recorded a considerable increase in dwelling prices.
Many may not know that the market conditions that caused that boom are still prevalent today; the only thing that needs to be added is confidence.
What’s Causing the Lack of Confidence?
Australians don’t doubt the real estate market, with most of Australia realising that the market fundamentals are strong. In actual fact, a recent survey conducted by Canstar concluded that 60% of respondents said they expected house prices to remain stable, grow or possibly even skyrocket at some point before the end of 2024.
Most are concerned about interest rates and whether the continual rise of interest rates will make it too difficult to hold the asset over the long term and affect their cash flow.
With interest rates looking to stabilise in 2023, this will see confidence return to the market.
Australian’s trust with the RBA is on thin ice given the shock of which the eight consecutive interest rates were thrown upon us.
RBA governor Phillip Lowe strongly suggested in 2021 that interest rates would remain at 0.1% until late 2023 or early 2024.
As a result, many Australian’s have been left untrusting of the RBA and their future decisions.
However, once people are confident in the level of interest rates, their confidence will almost flick like a switch, remembering that the government needs a property boom for their benefit as well – you can read our blog on that here.
As People Wait for Interest Rates – Demand Builds
Like water in a kettle, demand is slowly bubbling away as people put off purchasing due to fear of interest rates. With every day passing, more water gets added to the kettle, and the flame beneath it intensifies.
As well as a pent up of demand, there is also a tightening of supply as sellers continue to hold their properties until they believe the market is at its peak.
In the same survey, 70% of homeowners said they were not planning on selling in the next few years. In addition, the first four weeks of 2023 have indicated that supply is tight with new listings over 25% on the five year average.
This pent-up demand coupled with reduced supply will cause a rapid shift from a buyer’s market to a seller’s market.
You can expect that the metaphorical kettle will overflow once interest rates stabilise, causing a mass rush into the market.
We all know what happens from there. Pent-up demand will far outweigh supply, pushing prices in an upward direction.
The Fundamentals Are Still Strong
The fundamentals behind the property market are now better than before the last high growth phase. Rentals are growing at record rates; unemployment is at record lows. Hell, even wages are rising.
Potential investors are looking at attractive yields with weekly rental asking amounts up across the board with the combined capital cities achieving a weekly rental increase of 14.6% over the past twelve months.
The unemployment rate remains at almost record lows at a mere 3.5%, causing employers to incentivise to keep staff with wages growing at the fastest rate in 10 years with a 1.2% increase in the September 22 quarter.
Australia has a huge infrastructure pipeline; the household balance sheets are strong, banks are reporting that most mortgages are ahead on repayments and population growth is off the charts.
These are the tell tail signs that economists and property advisors are looking for.
When is the Small Window of Opportunity?
That small window I spoke about is RIGHT NOW, and it could shut at any moment. It could shut on the first Tuesday of February when the RBA announces their next interest rate decision.
The kettle is almost full, the flame is hot, and the next property growth cycle is almost here.
I fear that those who fail to take advantage of this current market may never be able to enter the market again, with home prices already almost out of reach for many.
To the first home buyers, I’d encourage you to look at alternatives to buying your forever home. Consider strategies like rentvesting or purchasing a home in the outer suburbs to get a foothold into the market.
For existing homeowners and property investors, think about your capacity and the head start you may wish to give your children.
Regardless of your situation, circumstances, and goals, I am passionate about helping you strive to meet your financial and investing goals.
Reach out to me directly at leonie@wealthology.com.au to chat about ideas.