Whether it was around the dinner party table, the coffee machine at work or the pub on a Sunday afternoon, property dominated conversations in 2022.
Prices went down, mortgages went up, renting became financially precarious and the federal election produced a big promise to ease the stress on housing supply.
So what’s in store for 2023? What can buyers and sellers expect?
Domain’s chief of economics and research Dr Nicola Powell says these are the trends to watch in the market, many months after Auld Lang Syne sounds, and has outlined the market forces for the new year in the Domain 2022 End of Year Wrap report.
The price downturn will be shorter and less severe than the boom
Dr Powell says it is important to remember that property goes through cycles – currently, most capital city markets in Australia are in a downturn.
“That is the healthy nature of a property market, just as the economy expands and contracts,” she says.
“We will see prices continue to fall in 2023 but it is unlikely they will erase all the growth achieved during the pandemic upswing. That was a once in a generation boom. A lottery win for some homeowners across Australia.”
Periods of price growth last longer than periods of price decline that follows, Domain’s 30-year research of capital city price cycles shows.
Dr Powell expects the “trough” of the market to hit in 2023, followed by a price recovery, and says it will be a defining feature of the market by the end of next year.
The financial chance to upgrade your home
Dr Powell said capital cities can have markets-within-markets, which run at different speeds.
The record price gap between houses and apartments that developed and widened during the pandemic will narrow in 2023, she says.
“Anybody who is looking to upgrade from a unit to a house, it should become more affordable to make that leap.
“The ultimate thing I am expecting to see in 2023 is that affordable housing options will hold up better, for houses and units as well.”
Interest rates won’t be the only factor influencing price
Dr Powell said the property market had started to soften before the Reserve Bank bumped interest rates in May 2022, because buyers had been struggling to keep up with rapidly increasing house prices.
“Buyers have now adjusted to this new norm and will be forward planning, pricing in a buffer for further rate hikes and more mindful of their lower borrowing capacity,” she wrote in the report. “2023 will test the serviceability of mortgage holders as record-low fixed rates secured in 2021 begin to expire.
“However, the majority of the rate rises are now behind and they could start to fall again by late 2023. Interest rates are not the only factor influencing housing prices. Tax settings, banking regulation, population and income growth, and the responsiveness of new housing supply to growing demand all make an impact.”
Dr Powell tells Nine that mortgage affordability will be front of mind in 2023, but the key area to watch will be whether distress sales increase and fixed-rate homeowners whose deals are expiring and are entering the variable-rate environment. She said they may be vulnerable and “feel the absolute pinch”.
She says “strategic investors” will come into the market, who are not concerned about buying in a downturn, purchasing for tax purposes or for long-term hold. “It is time spent in the market that counts, not timing.”
An immigration surge will boost housing demand
Demand from overseas migration put pressure on the rental market this year, after borders that shut during the start of COVID reopened.
“As part of the budget, the Australian government has increased its quota for the permanent Migration Program to address the skills shortage gap – essentially the biggest immigration drive ever for Australia,” Dr Powell wrote in the wrap.
“This will boomerang back as an influx of people arrive from overseas and add additional demand to our housing market.”
Buyers will pay a price premium for “livable” homes
Buying a home with “livability” will be a priority in 2023 – an appetite which was sparked by COVID and the work-from-home wave which forever changed life for some Aussies.
“It has been really interesting watching the impact of the pandemic on what people search for in their homes,” Dr Powell said.
“No matter the market, there are certain houses, streets and pockets that buck the overall trend.”
“The pandemic created one of the greatest lifestyle shifts we have ever experienced, and there is going to be a legacy left by the pandemic, and that is the importance of our home and the community in which our home sits.”
Studies have risen up the ranks of keyword searches on Domain, and the importance of a home with that ultimate functionality is something “people will pay a premium for” in 2023, Dr Powell said.