Property market update: Perth, May 2022
Perth continued to outperform its bigger capital counterparts in May, as the city closed up the autumn season with a sol...
While residential markets are set to continue rising in 2022, Herron Todd White (HTW) is tempering investors’ expectations that the year will replicate the record-breaking price growth seen in 2021, citing developing headwinds.
In its latest Month in Review, HTW stated that while the majority of capital city markets are still forecast to record gains, there are downside risks that are beginning to emerge.
For houses, the report showed that all capital city markets are still on the rise, bar Canberra’s house market, which the report said has already reached its pinnacle.
For units, Sydney, Brisbane, Adelaide, , and Hobart were identified as rising markets. Meanwhile, the report named Melbourne and Hobart as markets that are on track to recovery. Canberra was the outlier once more, as the report believes that the city’s unit market is now on the decline.
“As several key market factors drove extraordinary price growth through 2021, so too several headwinds are developing and have the potential to soften current growth levels, or even disrupt market segments,” according to Ben Esau, HTW’s national director for residential.
The report enumerated various elements that were likely to have a negative effect on the property market, including interest rates, affordability, labour and migration trends, further tightening of regulations around credit availability, and COVID-19 – particularly the Omicron variant.
Speaking on rate hike timelines around the world, Mr Esau said: “Rising inflation is impacting economies globally putting pressure on the timing of interest rate increases.”
He noted that while Australia’s inflation is tracking lower than other countries such as the US, lenders in the country have already lifted their fixed interest rates, with the potential for further hikes in the first quarter of the year.
On 2 December 2021, the National Australia Bank (NAB) was the last of the big four to raise its fixed rate loans to above 2 per cent.
While rate rises can often dampen market sentiment and activity, Mr Esau highlighted that “perspective is important”.
“Current rates, even if they rise through this year, are still at historically low levels,” he said.
Meanwhile, he also shone the spotlight on how current labour market conditions and trends will drive regional market growth.
“The continued transformation of long-term work arrangements, low unemployment (increasing employee choice) and changing property/lifestyle preferences continue to provide conditions for strong regional performance,” he stated.
He noted that in 2021, interstate and intrastate migration away from densely populated cities had been a hallmark of the demand driving growth in regional and smaller city markets.
This year, he also expects overseas migration to revert to greater levels as skills shortages and low unemployment create a significant “pull factor” for regional migration.
He explained: “Historically, overseas migrants concentrated on major capital cities – in particular, Melbourne immediately before the pandemic – what is not known is whether new migration patterns will follow this capital-city trend or add further pressure to regional markets.”
Mr Esau also said that migrants might also prefer larger properties and more lifestyle options, which could be supported by upfront flexibility from employers.
He stated that even though most states and territories have been open since November last year, the main question will be if the unprecedented migration to regional Australia seen in 2021 will continue, taper or reverse, which he stated will likely be a key driver in regional market performance in 2022.
Finally, the expert reiterated how recent developments had emphasised the unpredictability of the COVID-19 pandemic.
Instead of the long-expected opening of Australia’s states and territories at the start of the year, he noted the Omicron variant took daily case numbers to new record levels, resulting in hard lockdowns being replaced with soft lockdowns, which created further complexities for policymakers trying to support struggling businesses, as well as whole cities.
Commenting on COVID-19’s impact on the property market, Mr Esau said: “Overall, this pandemic has brought a period of extremes characterised by an almost universal increase in property prices nationally, and at levels some markets have not seen before.
“Early signs for 2022 are suggesting a separation of performance between markets based on more local dynamics and price growth at more normal levels.”