John McGrath – A year of immense change

I look back on 2022 and think it’s got to be one for the record books.

Firstly, with last week’s final 0.25% rate rise for 2022, interest rates have gone up by a total of 3% in a year. We haven’t seen that sort of spike since 1994 when they went up by 2.75%.

Inflation went to its highest point in 30 years this year, and supply chain and labour issues have caused home building costs to rise at their fastest pace since the introduction of the GST.

We’ve had historically significant population changes, with greater growth in the regions than our capital cities for the first time in four decades, according to the Bureau of Statistics.

And it’s been one of the fastest property market corrections I’ve witnessed, with the silver lining being that many buyers have purchased with a good 5% to 10% discount on last year’s prices.

Financially, rapidly rising mortgage rates have been a challenge for owners who didn’t acknowledge and prepare for the inevitable turn in the interest rate cycle after we hit bottom.

Rates couldn’t stay that low forever. Many Australians used surplus stimulus and extra disposable income while rates were historically low to pay down mortgage debt or boost savings in their offset accounts. That’s helping them now.

We’re still well off the historical average of about 7% for home loan rates, and all indications are the Reserve Bank may not increase them much more.

We saw an unexpected fall in inflation in October and the RBA Governor has said smaller rate rise increments are appropriate from here. It looks like we’re through the worst of this rate-rising cycle.

As discussed in our McGrath Report 2023, property values have fallen in many markets this year, as you’d expect following the extraordinary pandemic boom. Here is the latest CoreLogic data showing house price movements from January 1 to November 30.

Median house prices movements: Jan 1 – Nov 30, 2022

• Sydney -11.9%
• Regional NSW -1.5%
• Melbourne -8.1%
• Regional VIC -0.7%
• Brisbane -0.8%
• Regional QLD +2.1%
• Canberra -3.5%
• Adelaide +10.2%
• Regional SA +17.1%
• Hobart -4.7%
• Regional TAS +3.5%
• Perth +3.7%
• Regional WA +5%
• Darwin +5.2%
• Regional NT +1.6%

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Every market bar regional South Australia and regional Western Australia has experienced falling house prices over the past three months. We are well past the mid-point of this correction. By Spring next year, we will see a more normalised market across the country.

I’m still backing South-East Queensland for the most upside potential over the medium term. It’s very popular with capital city seachangers relocating because they can now work from home.

Many are upgrading their lifestyles while downgrading their home loans in areas like the Gold Coast, Sunshine Coast and Brisbane. Some Sydney and Melbourne buyers are purchasing both a home and an investment because they’re bringing big city money to a much more affordable market.

Plus future growth drivers are strong, such as 10 years of pre-Olympics infrastructure projects, as well as increasing interest from overseas investors.

A few national trends this year included increased interest in renovated properties because building became too hard. A few developers went bust partly because increased costs eroded profits down to almost nothing on fixed-price projects, plus they couldn’t find labourers to get the jobs done.

The regional relocation continues, and many beachside markets have become too pricey for millennial families. As a result, we’ve seen a beach-to-bush swap. Coastal hinterlands, rural areas and wine regions are the beneficiaries.

We’ve also seen a significant increase in rents – about 10% nationwide, according to CoreLogic. This has been brought about by an undersupply coinciding with rising costs due to inflation for landlords.

We’ve also got migrants returning to Australia – who generally always rent first -- and Airbnb properties that became long-term rentals during COVID-19 going back to holiday leasing.

Tenants can always try negotiating for a lesser increase when landlords raise the rent. If you look after the property and pay rent on time, remind your landlord of that. If you can’t afford the increase, explain why and see if they’ll be empathetic and reduce it to keep you in place.

The first week in December was the busiest week for auctions since mid-June. Clearance rates are hovering in the early 60%-range in Sydney and Melbourne, representing normal market conditions.

If your property isn’t selling, there are only three potential reasons -- price, presentation and marketing. This is true in any type of market conditions. Re-evaluate now if you want a sale before Christmas.

If you’re thinking of buying, don’t bother trying to time the market. No one can pick the top or bottom – even the professionals.

The only factors that should be driving you are personal needs and affordability. Just remember whatever you pay today is going to be cheap in 10 years’ time. Just get the location right, only buy quality, and keep within your budget.

I wish everyone a great Christmas and holiday season. I’ll be back with more market insights in 2023. See you then.

_{* 1 Source: CoreLogic Hedonic Home Value Index, published December 1, 2022}