Eight Major Influences Affecting The 2022 Property Market
The Sydney property market experienced a historic boom in 2021, with house prices skyrocketing by a phenomenal 33.1 per cent.
But what can we expect for 2022? We take a look at the factors impacting the property market in 2022.
2021 was a record-breaking year in the property market, with Sydney house prices growing by an incredible 33.1 per cent, and unit prices by 8.3 per cent, according to the latest Domain House Price Report.
CoreLogic’s Best of the Best 2021 report shows just how strongly the eastern suburbs performed, with Bellevue Hill taking out the top spot for highest median house values in the country, and Vaucluse, Double Bay, Tamarama, Rose Bay, Dover Heights and Bronte all featuring in Sydney’s top ten highest median house prices.
So what can we expect for eastern suburbs real estate this year? We take a look at the factors affecting the property market in 2022.
Back in 2016, underlying inflation slumped below the Reserve Bank’s target range of 2 to 3 per cent, and there it stayed until the September 2021 quarter, when it rose to 2.1 per cent before reaching 2.6 per cent in December. The Aussie dollar has been falling in recent months, which may also contribute to a rise in inflation. Inflation is not out of control, according to economist Saul Eslake – after all, it remains within the RBA’s target range. Rising inflation can be positive news for homeowners, but may lead to a rise in interest rates.
2. Interest rates
Low-interest rates were one of the drivers of last year’s property boom, and while the Reserve Bank has said it won’t lift rates until 2023, some economists are starting to predict otherwise. Westpac recently forecast a 15 basis point hike in August, followed by another 25 basis point rise in October, which would bring the cash rate to 0.5 per cent. If interest rates do rise this year, it could slow property price growth as buyers’ borrowing capacity is reduced.
3. Wages growth
But it’s not all bad news, as rising inflation and interest rates may well be accompanied by wages growth.
In fact, it’s already happening. Together with low unemployment rates across the country, rising inflation is prompting wages growth. After reaching a decades-long low of 1.4 per cent in September 2020, wages growth had lifted to 2.2 per cent by September 2021. The RBA wants to see wages growth lift to above 3 per cent, which would help mitigate the effect of higher interest rates on property prices.
4. International borders
Another big change this year will be the return of migrants and visitors from overseas, including foreign property investors. While our international borders were closed in 2021, foreign purchases of Australian real estate fell to record lows. We may well see a catch-up effect play out in the market this year now that international investors are able to enter Australia to inspect property. Markets that have been popular with overseas arrivals in the past, including the eastern suburbs, are expected to benefit.
Local investors are returning to the market too. Figures from the ABS show that the number of new loans taken out by investors increased by 89.6 per cent in the twelve months to October, and that trend is expected to continue into 2022. Investors will want to take advantage of still-low interest rates and eastern suburbs vacancy rates that are expected to tighten further with the return of overseas migration, including international students. Demand for short-term rentals, like Airbnb, from both Australians and overseas visitors, is also ramping up.
6. Lifestyle, lifestyle, lifestyle
Lifestyle and prestige properties were in high demand last year as people reevaluated what they wanted from their homes in light of ongoing lockdowns. Homes with exceptional amenities and features, or those within a 5km radius of nature, green space, or the beach, were highly sought after by buyers. Houses in Bronte (up by 58.4%), Tamarama (68.2%) and South Coogee (49.5%), for example, performed exceptionally well. Buyer interest in lifestyle and prestige properties, including larger homes in parkside locales like Paddington, Woollahra and Centennial Park, remains high, and we expect this to be the case throughout 2022.
7. Stock levels
One of the defining features of last year’s property boom was a lack of available homes for sale. As demand outstripped supply, we saw prices skyrocket as buyers competed to secure one of the few properties on the market. Data from SQM Research shows that Sydney listings reached multi-year lows during the lockdown in August and September, but by October, when COVID restrictions were easing, more homes came onto the market and supply levels normalised. Another COVID curveball notwithstanding (more on that below), we can expect that trend to continue with more stock on the market in 2022. This is good news for everyone, as it means more choice and less pressure for both buyers and sellers. After all, vendors are usually looking to buy as well.
COVID remains the major wildcard in the property market in 2022. The recent spread of the Omicron variant in Sydney has so far coincided with a traditionally quiet period in real estate, and whether or not it will have any effect on the market remains to be seen. If it passes quickly, vendors will most likely feel comfortable listing their property for sale in big numbers as they did in October and November. However, if it (or future variants) impacts consumer confidence and keeps vendors from listing their properties, we may see a return to 2021 conditions with property prices rising steeply due to stock shortages.
If you’re thinking of buying, selling or investing in Sydney’s beautiful eastern suburbs this year, my team and I can help. Get in touch today.