We highlight some fundamental elements supporting the growth of Australia’s diverse real estate markets. The Australian real estate market will continue to be influenced by various variables in 2023.
There are some bright spots in the next year’s economic and financial prospects, provided you know where to look. Several of the most critical drivers of success in the Australian real estate market are discussed in this article.
Residential property market outlook
In 2021, after relative stagnation, the residential real estate sector saw explosive expansion. As a result of interest rate increases and increasing prices, 2022 saw much-reduced volumes entering the market. As these factors continue to add uncertainty to the market, the economy’s future will depend on how interest rate increases play out.
Increasing interest rates and a lack of consumer confidence might further depress the home market. The average new variable rate is now between 5% and 6%, and this year will see the expiration of almost 60% of the record-low fixed-term mortgages acquired in 2021.
The housing market as a whole will be put to the ultimate test by this. Even though most homeowners will still be able to sell their houses, the demand for Australian real estate may see an influx of new supplies as individuals feel pressured to sell.
What are the chances of a home market collapse?
There has been a lot of talk in the Australian property press about a possible collapse in the housing market. Nevertheless, it is helpful to put recent market activity in a historical perspective, as we may utilize information about past price cycles to better predict what may happen in the future.
Australia’s residential real estate market is notorious for its erratic price fluctuations. Although there is a national decline in the Australian real estate market, not every region is feeling the pinch in the same way. There is a wide variety of real estate markets inside each state capital, with some seeing a decline in value, others remaining relatively steady, and a select few showing signs of growth.
Market observers have labeled this time as the “adjustment” stage of the property cycle. Critics have noted that nationwide housing prices had to correct since they had become too high. The ratio of household debt to disposable income in Australia was very high compared to historical norms and worldwide averages. This was primarily due to the massive mortgage debt carried by families. Rising interest rates impact the market, but they aren’t the only thing influencing property values.
According to market observers, we are presently in the “adjustment” stage of the property cycle. As some observers have pointed out, national home prices had become too high, necessitating a correction.
The magnitude of mortgage debt carried by households has contributed considerably to Australia’s household debt-to-income ratio, which has climbed to significantly elevated levels relative to both historical and worldwide averages. Even while house prices are affected by the market, interest rate hikes are only one element.
When there are too many sellers and not enough buyers, the market is said to “crash.” This happens when sellers are compelled to sell their homes at steep discounts. People selling their houses are usually simultaneously in the market for a new one.
As mortgage expenses (interest rates) grow, homeowners may be compelled to sell their homes if they cannot keep up with monthly payments. Borrowers can manage the return of interest rates to their pre-pandemic levels. A high unemployment rate is another potential collapse trigger, although this is not the case in Australia.
Strong demand for new trends
Demand for new construction, especially apartments, remains high, as seen by the nation’s low rental vacancy rates. Because of rising building costs, the number of available flats remains consistently low throughout the country. Apartments are in high demand as immigration picks back up post-COVID and purchasers, especially owner-occupiers and downsizers, hunt for better deals.
The population of Australia is projected to increase by 2.3%, or 2.3 million people, during the next decade, all because of immigration. All these people need somewhere to live, and their demand might substantially boost the homebuilding sector.
Investor demand is still being determined as interest rates rise and building costs add another obstacle. However, a compelling argument for property development exposure is provided by the existing robust rental markets and anticipated immigration.
