When to expect housing market to start recovery?

Oksana Patron

1 December 2022

The expected pause in the rise of interest rates by no later than June next year and already visible signs of recovery in housing values in some areas, such as Sydney’s Eastern suburbs, may indicate that Australian housing market might be set to recover in 2023, SQM Research said.

According to “Christopher’s Housing Boom and Bust Report 2023”, the cash rate would rise to no higher than 4% and would stay on hold for the year.

This mean that in the case base scenario, dwelling prices would go up between 3% to 7%, with Sydney expected to lead the recovery.

According to the report, housing values across Sydney will also benefit from a combination of the rise in overseas arrivals, the return to the office, the existing shortage of rental accommodation as well as the new stamp duty/land tax changes and the expected ongoing strength of the Sydney economy.

SQM’s forecast for Sydney was for dwelling prices to go up between 5% to 9%, while Melbourne was forecast to enter into recovery at a slower pace with the values going up between 1% to 5%.

Following this, Perth was expected to rise between 4% to 8% thanks to strong rises in employment and positive interstate migration.

“No doubt it will be a very challenging year for the RBA to walk their tight-rope and pull off a soft landing for the Australian economy. However, contrary to current popular opinion, I believe they will manage to do just that,” Louis Christopher, managing director of SQM Research, said.

At the same time, national dwelling values were still falling in November (-1%) as according to CoreLogic’s national Home Value Index (HVI) albeit the rate of decline was consistently moderating since the national index dropped by -1.6% in August.

According to CoreLogic’s research director, Tim Lawless, the easing in the rate of decline was mostly led by  \the Sydney and Melbourne markets, but was also evident across many of the smaller capitals and most regional markets.

“Three months ago, Sydney housing values were falling at the monthly rate of -2.3%. That has now reduced by a full percentage point to a decline of -1.3% in November.  In July, Melbourne home values were down -1.5% over the month, with the monthly decline almost halving last month to -0.8%,” he said.

“The rate of decline has also eased across the ACT (from a -1.7% fall in August), and is no longer accelerating in Brisbane. Most of the broad rest-of-state markets have also seen the pace of declines decelerate.”

According to him, the market saw the initial uncertainty around buying in a higher interest rate environment to wear off, but persistently low advertised stock levels likely contributed to this trend towards smaller value falls.

“There is still the possibility that the pace of declines could reaccelerate, especially if the current rate hiking cycle persists longer than expected. Next year will be a particular test of serviceability and housing market stability, as the record-low fixed rate terms secured in 2021 start to expire,” Lawless said.

Across the capital cities, Brisbane and Hobart (both down -2.0%) led the monthly rate of decline in November, while at the other end of the spectrum, Perth values held firm and Darwin nudged 0.2% higher over the month.