3 Key Property Market Factors to Watch in 2023

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The property market has experienced record-breaking fluctuations in recent memory. Most notably we remember the Covid-trough in 2020, the subsequent Covid-peak in early 2022 and the most recent interest rate-fuelled downturn of 2022. The rollercoaster of the Australian property market has left buyers and spectators holding their breath to see what’s in store for the year ahead.

Whilst we cannot predict what is going to happen in 2023, we can track key factors that influence the behaviour of buyers and sellers in the market. We can analyse the trends and anticipate how changes in buying and selling behaviour may influence property prices in the local markets.

There are numerous factors that shape the property market, and we are selecting 3 of the most influential factors we’re watching in 2023:

1. Interest Rates and Credit Policy

Rising interest rates were the primary influence on the recent price movements in the property market. Interest rates have such an impact because as rates increase, borrowing power is eroded, which reduces the amount buyers can afford to pay for property.

While interest rate rises began to increase from a record low 0.1%, the speed at which rates rose i.e. 8 consecutive increases, had a significant impact on the amount buyers could borrow. According to the Loanscape Capacity Index, borrowing capacities are now 27% lower than their peak in October 2021. This dramatic change to affordability translated into property price declines across the country.

Several economists have shared their opinion of the trajectory of interest rates with the AFR. The consensus reveals that interest rates are likely to plateau by December 2023 and decline by June 2024.

With the power and influence of interest rates on the property market, this is our number 1 factor to watch in 2023.

The second market intervention to monitor is credit policy. APRA is tasked with the safety and stability of the Australian financial system and made waves in 2021 when they increased the minimum interest rate buffer from 2.5% to 3%. The increased scrutiny was in response to the risks to financial stability in the home lending environment at the time.

Commentators in the market are shifting their attention back to APRA, igniting discussion about the effectiveness and necessity of the buffer in today’s lending environment. Experts question whether the buffer needs to remain at the heightened 3% as it was imposed during a record-low interest rate environment.

If there are any changes to APRA’s policy, it could influence the borrowing power of buyers, changing the amount buyers can afford to pay for property and in turn, influencing property prices.

2. The impact of government policy

Government policy such as first home buyer grants influence the number of buyers in the market and the demand for property. The influence on the property market is limited however, if there are caps on the number of buyers eligible for the program. For example, the new Shared Equity Home Buyer Helper is only available to 3,000 buyers over the next 2 years. The First Home Buyer Choice (stamp duty vs property tax) however, is a government scheme that is proposed to an uncapped number of purchases who meet the criteria.

The government predicts that The First Home Buyer Choice could save buyers money for up to 63 years by opting to pay property tax over up-front stamp duty. These savings open doors (no pun intended) for more first home buyers at a rate which could influence demand and property values in the sub $1.5M price bracket.

The scale of this policy coupled with the material impact of the stamp duty cost on first home buyers, is why this government policy is a market indicator to keep a close watch on.

3. Consumer confidence

Consumer confidence is closely monitored and reported on each month due to its wide-reaching influence on the economy. Consumer confidence extends to the property market as reported by the Westpac Time to Buy a Dwelling index and CBA’s Home Buying Intentions index.  The findings provide insight into buyer behaviour on a large scale.

Westpac’s Time to Buy a Dwelling index fell by 2.9% in December 2022 and has sat in the ‘pessimistic’ space for the last 6 months. The pessimism is attributed to affordability constraints faced by buyers. However, the report’s House Price Expectations Index surged by 27.6% in December 2022. The uplift is due to consumers’ revised expectations regarding future interest rates

CBA’s Home Buying Intentions index rose by 3.9% in November 2022 which is likely due to higher total listing volumes and inspections. Overall in 2022 however, the index fell, reflecting a 24.8% decline in November 2022 compared to the same period in 2021. This downward trend is influenced by interest rates and is reflected in the decline of property prices.

The mechanics of the property market are closely linked to consumer sentiment, which helps buyers stay in tune with property price trends and cycles.

If you don’t have the time to track and interpret property data, and you are keen to buy ahead of the pack, call us today on 02 9568 6330 or email us at nick@buyersdomain.com.au.

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