Property market moves into downturn phase
Australia’s housing market will be digesting the prospect of rising interest rates over the next six months, leading to a downturn which will present some opportunities for counter-cyclical investors, according to Pete Wargent, co-founder of Australia’s national marketplace for property buyer’s agents, BuyersBuyers.
Mr Wargent said, “the Australian economy has rebounded far more quickly than anyone could have dared to hope but combining the rebound in demand with supply chain disruptions means that the second half of 2022 will see some of the highest headline inflation prints in approximately three decades”.
“The prospect of the cash rate target potentially rising from close to zero towards 3 per cent by the end of this year will be a serious handbrake on housing market sentiment and activity, not least because so many younger borrowers have never experienced interest rate hikes before, let alone the fastest tightening cycle since 1994”.
“Our best estimate is that the property market downturn will continue for as long as borrowers fear rising mortgage rates, led by Sydney and Melbourne, and this is likely to mean for at least the remainder of 2022”.
“The flip side to this is that the underlying housing market fundamentals are strengthening, with immigration visas set to be fast-tracked to address Australia’s skills shortage, the lowest unemployment rate in 50 years, and incomes now rising” Mr Wargent said.
Top suburb picks
BuyersBuyers CEO Doron Peleg said that the national marketplace for buyer’s agents has now released its Investor Special Report for 2022-3, assessing the outlook for each of Australia’s states and territories.
Mr Peleg said, “using our unique housing market analysis tools, we have not only taken a macro view in our Investor Report, but we have also identified some of our favourite suburb picks and investment hotspots.”
“In New South Wales, we expect there to be a sharp rebound in sentiment and activity in early 2023, especially in the sub $1.5 million price brackets, as the long-discussed stamp duty reform kicks in for first homebuyers from January. All of our suburb picks for houses and units therefore reflect this, as well believe the property market recovery will be driven from then entry level price points upwards” Mr Peleg said.
Figure 1 – New South Wales top suburb picks
Houses up to $1M
Units up to $1M
BuyersBuyers co-founder Pete Wargent said that the Melbourne market has been significantly disrupted over the past couple of years, with extended lockdowns and COVID restrictions and decline in the population as residents headed interstate to south-east Queensland.
Mr Wargent said, “the relative underperformance of the Melbourne market means that there are some attractive deals on offer for counter-cyclical investors in suburban houses. Some counter-cyclical investors are also now looking at investment grade units in Melbourne, after a decade of underperformance, particularly where they can find assets with a point of scarcity.”
Figure 2 – Melbourne top suburb picks
Houses up to $1.2M
Units up $750K
Mr Wargent said, “in south-east Queensland the rental market remains extraordinarily tight following the fastest net interstate migration to the state in Australia’s history, which is still continuing.”
“SEQ has benefited from remote and flexible working arrangements more than any other state, and there are some excellent opportunities to buy houses in Brisbane, Gold Coast, and Sunshine Coast. Price growth has been strong over the past 18 months in Queensland, so investors need to be discerning, buy carefully, negotiate hard, and take a long-term view, perhaps out to the 2032 Brisbane Olympics”.
Figure 3 – South-east Queensland top suburb picks
Houses up to $1M
Units up to $750
Mr Wargent said that after a relatively quiet decade a looming rental crisis and relative affordability is driving a tremendous surge in interest from investors looking to buy in Adelaide.
“Two of the key features of the past couple of years have been a ‘race for space,’ and water as a drawcard for property buyers. Some of Adelaide’s beachside suburbs tick both of these boxes, and from relatively attractive price entry points as compared to the larger capital cities.”
Figure 4 – South Australia top suburb picks
House from $450K
Counter-cyclical opportunities
BuyersBuyers CEO said that the 2022-3 Investor Report will be made available via the company’s website.
Mr Peleg said, “average household sizes declined through the pandemic, and despite a large volume of dwellings under construction, there is going to be tremendous pressure on Australia’s housing stock over the next few years as immigration ramps up again.”
“As population rises towards 350,000 to 400,000 per annum by the end of next year, and as borrowers realised that mortgage rates are still relatively low in absolute and historic terms, we believe that the second half of 2022 will prove to be an attractive period to buy for investors seeking an inflation hedge as rents soar.”
“There is an excellent opportunity to buy with far less competition and to negotiate hard on quality assets for the long term” Mr Peleg said.
“Of course, borrowers need to factor in that mortgage rates will inevitably rise from here, and to take a long-term view of investment property as an asset class.”
