What Does The Property Market Have In Store For Us In 2022
There has been plenty of speculation about booms ending, market crashes and interest rate rises in 2022, but there have always been property doomsday predictors, just as there are those on the flipside that expect constant market growth.
The reality is that neither camp is 100 per cent right. So, if you’re wondering what property has in store for you next year, think about the following factors.
The potential headwinds
Two of the things that have got people nervous include the effects of the recent APRA restrictions on borrowers and the potential for interest rate rises, which could jeopardise property affordability for some people and even render some unable to pay off their mortgages. In the past, a large number of mortgage defaults has meant a price correction, because people are forced to sell in order to pay back the bank. And in that state, buyers have the advantage and can argue down asking prices.
But before we get carried away, let’s take a moment.
First, let’s look at APRA. The change that was announced this year was simply using a 3% buffer instead of a 2.5% buffer when assessing a loan application. This means that a lender will need to determine you could handle an interest rate increase of 3% and still be able to service a mortgage.
The purpose of the move was to knock some of the buyers out of the market who were stretching themselves more than they could afford to in order to buy a property.
The effects have not been fully realised yet, but with interest rates still so low, there should be no shortage of buyers ready to go next year.
Should interest rates start to rise, most borrowers should be equipped to handle paying a bit extra, especially if they’ve been conservatively assessed by their lenders.
Rates would have to go up a lot to have a major effect on the market in 2022 and that is unlikely to happen. In fact, not everyone is convinced they will go up at all.
Nathan Birch, founder of b Invested, has long been touting negative interest rates as a possibility and the RBA still hasn’t ruled it out either.
Open borders will bring buyers back
There may be some volatility in the market next year, but will there be a crash?
Absolutely not, according to Nathan, who says that we will be reopening borders to allow immigration back into the country. There will be migrants, plus international workers and students. All of these will need a roof over their heads and will be looking to buy or rent property.
That extra demand should be enough to swallow up any loss of buyers caused by APRA restrictions and even give value growth an extra kick-along.
Inflation and material gain
Some early signs of inflation have been present in the Australian economy as we recover from the lockdowns of the last two years.
Much of the inflation, contributed to by government and central bank stimulus, manifested itself in the property market, with people putting their money towards improving or paying down their home.
Effects were especially felt in the cost of building and construction. The materials needed to build a house are rocketing in price and there are lengthy wait times for supplies needed to get jobs done. With prices on the rise for materials, property prices are unlikely to fall.
Property ebbs and flows
The most important thing to remember is that property values don’t go up and up in a straight line. Property isn’t linear.
Values might rise for a year or two, and then they might plateau and even go down a little bit, before stabilising and then heading into their next growth cycle.
We saw it with Sydney between 2013 and 2018, before there was another surge in growth from 2020.
But Australia is a bigger place than just Sydney and while it may be difficult to find investment deals in some markets, there are others where there are still opportunities.
Nathan has recently done deals in parts of Queensland where he has purchased properties for cheaper than they last sold more than a decade earlier.
Nathan says there are still markets out there where properties can be purchased for below value, with upside for growth and positive cashflow. It’s all about finding those opportunities.