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Real estate fundamentals will underpin values in 2023

December 12, 2022

With the new year fast approaching and the RBA appearing hellbent on a few more interest rate hikes, many homeowners, buyers, and investors are rightly interested in Australia’s favourite asset class outlook.

Predictions the sky will fall are wide of the mark

While the Australian property market has softened a touch, the predictions that values will drop by 20-30% will be wide of the mark. Indeed, I’ve been in the real estate market since the 1980s. The recession in the 1990s saw some falls in values, and then just 3.3% in the global financial crisis. Even in the challenging year of 2018, values only readjusted by 4.8%. 

According to CoreLogic, the current rate of decline is moderating since the national index dropped by -1.6% in August. Moreover, at just 3.2% for the year, we are far from a crash situation. 

There are also plenty of markets where owners are still enjoying year-on-year growth, including Adelaide (up 13.4%), Darwin (5.5%), Perth (3.9%) and Brisbane (3.3%). 

Rates are settling as the economy grows stronger 

Looking ahead to 2023, interest rates might settle at a point a little higher than before the pandemic. Better still, the banks, at the urging of the prudential regulator APRA, have allowed for interest rate rises of 2-3% when approving mortgages. 

At the same time, Australians have built significant savings buffers in their offset accounts, while many homeowners are mortgage-free.   

Our economy is growing rapidly. Australia’s GDP grew 0.6% in the September quarter and 5.9% annually as the economy recovered from Covid lockdowns, and we have employment gaps across many sectors. High employment is excellent for real estate activity too. 

Massive population growth is good news for real estate 

The government is doing its bit to fast-track population growth, a significant factor in long-term real estate growth, by supercharging immigration. 

In 2023, the Federal Government will increase the number of permanent migration visas available in 2022-23 from 160,000 to 195,000 places – and these new arrivals need somewhere to live.

Our love of bricks and mortar 

 Given its size, the Australian residential real estate market is too big to collapse. At a tick under $10 trillion, our real estate market dwarfs the share market at $2.3 trillion. Also, the big financial institutions will do whatever it takes to help support property values, as bricks and mortar are critical to their balance sheets. 

Overall, 2023 will involve navigating a few more interest rate hikes before the property market returns to doing what it does best: helping Australians build wealth.