Key trends in property markets to watch in 2023

Oksana Patron

8 December 2022

After a roller coaster in property cycles in 2022 and a transition into a downturn from a once-in-a-generation property boom, the next year will be defined by shorter and less severe downturns, the return of international immigration and ongoing hunting for “the right neighbourhoods”, according to the Domain’s End of Year Wrap.

One of the key trends to watch would be softer downturns meaning that although the property prices would be expected to drop next year, with interest rates still rising and the cyclical nature of the property market, they would not erase all the growth seen during the pandemic boom.

The market would also become more divided, with multi-speed property markets creating more opportunities for upgraders.

According to the Domain’s report, overall, entry-priced houses and units would hold firmer, particularly in the most expensive capital cities, Sydney and Melbourne, and would be driven by the affordability barriers of purchasing, first-home incentives and deteriorating borrowing capacity steering demand to more affordable options.

And this coupled with the houses at the premium price point seeing greater falls, would create opportunities for upgraders.

At the same time, the market would be reminded that interest rates were not the only factor influencing housing prices, with a growing role in tax settings, banking regulation, population and income growth, and the responsiveness of new housing supply to growing demand also making an impact.

“Initially, rate hikes were a huge shock to potential buyers in 2022 but now buyers have adjusted to this new norm and are more mindful of their lower borrowing capacity. With the wave of fixed rate expiry in 2023, we will start to see the true impact of interest rate increases on consumer spending as more Australians tighten their belts to cover the step up in repayments over the last seven months,” Dr Nicola Powell commented.

Following this, the return of international immigration would again increase housing demand given that, as part of the budget, the Australian government has increased its quota for the permanent Migration Program to address the skills shortage gap which would essentially be the biggest immigration drive ever for Australia.

“This influx of people arriving from overseas will add incredible demand to Australia’s housing market. Initially, this will place a further strain on the rental market but continued rising rents will also make purchasing more attractive for strategic investors,” the report said.

Domain analysed keyword searches in 2022 which showed that lifestyle additions and location were high on wish lists, such as ‘pool’, ‘waterfront’, ‘beach’ and ‘view.’ Therefore it would be anticipated this would continue, with buyers still willing to pay a price premium for the right neighbourhood and their home’s liveability features.

“The global pandemic created one of the greatest lifestyle shifts Australians have experienced. It emphasised the importance of the home and its surrounding community, as well as the ability to work, live and play within a short distance of where we reside,” Powell added.

“Heading into the new year, we expect Australians to have their desire for more space, added security, the balance of life, the right amenities, education, sports facilities and green space on the top of their wish lists.”