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Property market predictions for 2022

In 2021 Australia’s property market reached new heights with national property values skyrocketing 22.1%.

Record-low interest rates, a shortage of supply, and government stimulus packages are just some of the factors which led this remarkable growth not seen since the late 1980s.

Source: CoreLogic

With rising house prices came growing housing affordability concerns, as first home buyers struggled to keep up with the rising market. While the Australian Prudential Regulation Authority (APRA) worked to tighten lending criteria, figures showed an alarming number of loans issued with debt-to-income ratios as high as over six times.

Heavy rental demand and lack of supply saw the rental market increase by 9.4% nationally in 2021, the strongest annual increase since January 2008. House growth trumped units as Australia’s domestic rental market favoured lower density living during Covid lockdowns.

In the building and construction sector, government stimulus packages boosted residential land sales and construction, with low deposit home loan providers such as Keystart making it easier for credit-worthy low-income owners to make the jump into home ownership. This heightened activity, coupled with the effects of Covid, led to large labour and material shortages, particularly brick and timber supplies, resulting in a rise in construction costs rise.

For a full 2021 property market wrap-up, read our blog here.

So, on the back of rising house prices, growing residential constructions demands and costs, and a rental crisis, what can you expect to see from the property market in 2022? We’ve put together a few of our predictions for the year ahead.

Property demand and house prices

The Australian property market is expected to perform well, with house prices tipped to rise further in 2022, albeit at a slower pace than 2021.

Nigel Satterley, Chief Executive, is confident the market will not experience any major price plunges within the next few years.

“I am confident that during the next few years we’ll continue to see prices in Perth recover up to 10%, returning to what they were eight years ago,” he said.

Mr Satterley expects South Australian prices to remain steady, and some of the growth areas in Melbourne and Sydney seeing a slight price correction of up to 5%.

“I believe Queensland will continue to see steady price growth driven by the current population surge of 900 people a week arriving from Sydney and Melbourne.”

Mr Satterley expect demand for property to remain strong and steady during 2022, with the desire for people to own their own home still strong.

“The home loan market is currently very competitive, and many banks and lending institutions are offering low deposit loans.

“In Western Australia we are in a unique position of having Keystart low deposit home loans – a wonderful initiative to assist credit-worthy low-income earners and especially good for first home buyers,” he said.

Interest rates and lending criteria

Speculation surrounding interest rate rises and further tightening of lending criteria are ripe, despite the Reserve Bank indicating it will not raise the cash rate until 2024.

In a market that is sensitive to increases in the cost of debt, due to high debt-to-income lending, changes in interest rates or lending criteria may see housing activity impacted.

Mr Satterley predicts interest rates will increase by, at most, 0.5% in 2022.

“I’m forecasting a .25% increase in September and again in November, then over the next 12 months another 50 basis points. I don’t anticipate interest rates will go up much more than a full 1% over the next couple of years,” he said.

When it comes to lending criteria, Mr Satterley added, “APRA are of course watching the banks, however the good news is that Keystart isn’t controlled by APRA."

"We are very lucky in Australia to have a wonderful banking system which is well controlled and safe, and I believe it’s unlikely that APRA will impose any further restrictions.”

First home buyers

While first home buyers originally benefitted from the low interest rates and government incentives for house and land packages, rising house prices have since meant FHBs have been priced out of the more expensive cities, such as Sydney.

WA led the first home buyer market in 2021, offering some of the best value housing across Australia.

“The FHB market will continue to be sound during 2022,” said Mr Satterley.

"WA offers very good value compared to cities like Sydney. The banks are currently offering highly competitive loan products enabling credit worthy people with low deposits to buy their first home, and we are also in the unique position of having Keystart,” he added.

When it comes to shopping for your first home, Mr Satterley’s advice is to take your time to look around and do thorough research.

“We are seeing listings rising so first home buyers are in a position to negotiate a bit more,” he said.

“I recommend buying a home in a masterplanned community as it will have good transport connections and access to amenities such as schools, shops, medical facilities, and recreation areas.”

When it comes to house and land, there are plenty of options available for first home buyers, with trends shifting towards larger homes.

“We are seeing a shift to quality house and land with buyers looking for larger block sizes, bigger backyards and proximity to beautiful parks. Covid has seen people give more consideration to the design of their home. They want larger living spaces, a flexible design to allow for a home office and larger alfresco spaces,” said Mr Satterley.

“Currently, 30% of Australians live in multi-residential housing, but I expect this number to drop to 20% over the next few years. Covid has resulted in people less keen to live so close to their neighbours, and to share lifts, gyms, and pools.”

Investors

Investor activity is set to increase in 2022 as Australia prepares to reopen its interstate and international borders to skilled migrants, students, and visitors.

In fact, investors have already started returning to the market to leverage the continued low interest rates, increasing rents and low vacancy rates.

Mr Satterley expects this to increase further in 2022.

“We are seeing a strong return of investors in Sydney, Melbourne and Queensland. whilst Perth is still in its first phase, I believe this will pick up soon."

“Residential homes are viewed as a very safe investment and investors are looking for long-term rentals – favouring quality housing stock over apartments. The rental market for houses continues to grow and in WA and Melbourne rentals are in very short supply," he said.

Investors should look at areas where there is proven rental demand, within a 5-to-40km radius of the CBDs.

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