Property prices to rise a further 10 per cent in 2022

REA Group’s PropTrack Property Market Outlook 2022 noted Hobart and Brisbane are anticipated to have the strongest price growth forecasts between 9-12 per cent, and 8-11 per cent, due to their low supply of stock for sale, heightened demand and relatively lower prices compared to other major cities. 

Meanwhile Adelaide and Canberra are expected to see a moderate increase between 6-9 per cent rise, followed by Perth (3-6 per cent) and Darwin between 5-8 per cent.

More expensive housing markets such as Sydney and Melbourne lagged behind with forecasts expected to be around 4-7 per cent, as demand may shift to more affordable housing markets.

It comes on the back of record price rises in 2021 of up to 25.2 per cent increase in median house prices.

Cameron Kusher, REA Group director of economic research, said as COVID-19 restrictions ease and more spending options become available, buyers may be less likely to dedicate as much of their income to housing in the months and years to come. 

“People haven’t had as many other things to spend money on – that’s been a big contributor to the price growth,” Mr Kusher said. 

“Now people have got a little bit more of those options available to them. So they might be wanting to spend more on that and less on property.”

Further, Mr Kusher said while there has been no movement in variable mortgage rates – the lift in fixed-rate mortgages signals rates will increase and borrowers don’t have the security of locking in low rates for several years. 

Late 2021 also saw a slowing down in demand, following the Australian Prudential Regulation Authority tightening credit and borrowing capacities. 

“This will likely contribute to a slowing of demand for housing and means that prices won’t rise as rapidly as they have over the past year,” Mr Kusher said. 

Which could bring some more positive outcomes, likely leading to a “better balance” between supply of homes for sale and the demand for them. 

It is also expected to result in properties starting to take longer to sell, as potential buyers have more choice and less competition, meaning they don’t have to move as quickly to secure a property and may not have to pay as much of a premium.

Owner-occupiers are ‘overwhelmingly’ largest source of housing demand 

While housing finance data in late 2021 showed that the value of lending for owner-occupiers had fallen from its peak, partly due to lockdowns, the REA expects demand for owner-occupiers will slow, yet remain the largest source of housing demand in the market.

Mr Kusher said despite any slowing, people continue to look at taking advantage of the lower interest rates.

“Owner-occupiers upgrading or downgrading are overwhelmingly the largest source of housing demand in the market,” Mr Kusher said. 

“Moving forward, other factors, such as now having more choice in how to spend incomes and perhaps some serviceability changes limiting the ability of owner-occupiers to borrow as much as they could previously, is likely to lead to slower growth over 2022.”

Investor lending continues to climb 

Since its low point in May 2020, the value of monthly investor lending has now increased by 139 per cent and the total value has now breached its previous historic peak in April 2015. 

Mr Kusher said while investor lending is rising, their share of total new lending is nowhere near the heights once reached in late 2014 when investor-targeted macroprudential controls were introduced.

“If the share of new lending continues to rise along with credit growth to investors, we may see the reintroduction of credit controls,” Mr Kusher said. 

He concluded that while investor lending may not rise as rapidly as it has, it was reasonable to expect that borrowing for investors will continue to climb in 2022.

The forecast did not look so promising for first home buyers following the removal of state government incentives, such as HomeBuilder grant.

“Since these incentives have been removed, we have seen lending to first homebuyers drop significantly,” Mr Kusher said.

“A major factor in the drop in borrowing is that prices have increased at a much faster pace than wages. 

“For anyone trying to enter the market for the first time, it has been difficult, if not impossible for their savings to keep pace with the increases in prices.” 

He said while it seems extremely unlikely that first home buyer participation will lift over the coming year, in a historic context it remains quite high.

[Related: Aus median house prices surpasses $1 mil]