The COVID-19 pandemic has undoubtedly caused significant disruptions to many aspects of our lives, including the property market in Australia. The market experienced a sharp decline in 2020, followed by a rebound, and is now stabilizing.
The question on many people’s minds is whether this stabilisation will continue, or will the market experience another rollercoaster ride in 2023?
In this article, we will take a closer look at the current state of the Australian property market and what experts predict for the future.
Australian property prices are 14.8% higher than pre-pandemic levels, but this varies by city, with Sydney values up 7.7% and Melbourne just 0.03% higher.
Regional dwelling values have increased by 30.7% since the start of the pandemic.
Emergency stimulus measures such as low-interest rates, income support payments, and mortgage holidays prevented distressed selling, causing the property market to rebound sharply.
The market has since fallen by 9.1%, the largest downswing on record, and has recently shown signs of stabilizing.
Consumer sentiment in Australia remains near 30-year lows, with areas of concern being inflation, interest rates, and the economy.
Experts are divided on whether prices will rise or fall in the coming year, but the demand for home offices and the sea change effect could permanently reset property prices in some lifestyle markets.
According to Eliza Owen, CoreLogic’s Head of Australian Research, there is a limited new supply of high-density housing, which is creating a situation where demand far outstrips supply.
This situation is compounded by the strong bounce-back of overseas migration, which has created a shock to the inelastic supply of housing.
Owen believes that this supply and demand mismatch will likely lead to housing being more expensive in the future than it was pre-pandemic.
According to the Westpac, homebuyer sentiment has dropped sharply to its weakest level since 1989. This means that people are feeling less confident about buying a home, which could have a significant impact on the housing market.
A lack of confidence in the market could lead to a decrease in demand for housing, which would, in turn, lead to a decrease in housing prices.
However, it is essential to note that this decline in sentiment is due to external factors such as inflation, interest rates, and the economy. It’s not necessarily a reflection of the state of the housing market itself.
The Resilience of the Housing Market
Despite the challenges facing the property market, the Australian housing market has shown remarkable resilience in the face of adversity.
Even with 3.5 percentage points of interest rate rises, Melbourne’s values have not yet fallen below March 2020 levels. This resilience is due in large part to emergency stimulus measures such as low-interest rates, income support payments, and mortgage holidays, which prevented distressed selling and caused the market to rebound sharply.
However, Shane Oliver, AMP Capital’s Chief Economist, expects housing prices to fall further. The return to more normal levels of interest rates would suggest that there is still more downside to go.
The Sea Change Effect
One interesting trend that has emerged during the pandemic is the sea change effect. This phenomenon saw city dwellers flee lockdowns and move to places like the Gold Coast and southeast Queensland, resulting in a massive increase in property values in these areas.
According to Nerida Conisbee, Ray White’s Chief Economist, some lifestyle markets would have a permanent rise in values due to this effect. These areas are not falling at the same rate as other parts of the country, and it looks like there’s now a permanent resetting of property prices in these markets.
In conclusion, the Australian property market is facing various challenges and uncertainties as the country navigates the post-pandemic landscape. The supply and demand mismatch, rising interest rates, and consumer sentiment remain areas of concern.
However, the resilience of the housing market and the sea change effect in some lifestyle markets provide some hope for the future. As we move further into 2023, it will be interesting to see how these factors play out and whether the property market will continue to stabilize or experience another rollercoaster ride.
Regardless of what happens, it’s clear that the pandemic has left a lasting impact on the Australian property market and will continue to do so for years to come.
Sources: SMH.com.au, Westpac
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