2021 was an unprecedented year for Australian housing markets, so what can we expect in 2022? Property valuation analysts Corelogic offer some predictions.
Data collated for Corelogic’s Home Value Index in the final months of 2021 shows that the number of home sales reached new record highs over the year, despite a backdrop of below-average listings and stalled overseas migration.
According to CoreLogic Research Director Tim Lawless, much of the demand has originated from domestic sources, fuelled by record low mortgage rates and an accumulation of pent-up demand from prior years, when housing turnover reached record lows. This is expected to change when travel bans are lifted.
“As international borders re-open, rental demand is likely to be the main beneficiary, rather than home buying demand, especially across the inner city rental precincts popular with students and visitors”, Lawless said.
The final months of 2021 saw housing values move through the fastest rate of annual growth since the late 1980s, at a time when wages and household incomes hardly moved.
“The juxtaposition of higher housing values against low income growth has resulted in higher barriers to entry: it is becoming increasingly harder to raise a deposit and fund transactional costs such as stamp duty”, Lawless suggested, adding that it is likely housing affordability challenges will progressively weigh on housing demand over the year ahead.
“Considering the worsening housing affordability situation, and with a federal election to be held this year, home ownership and housing affordability are likely to be hot political topics across the major parties”, he said.
Corelogic’s research shows that while sellers have held the upper hand at the negotiation table, buyers are starting to regain some leverage. With demand outweighing advertised supply, vendors have been empowered.
Nationally, homes were selling in 23 days early in 2021 with minimal negotiation on advertised prices, auction clearance rates were holding in the high 70% to early 80% range across the major auction markets and buyers were often experiencing a nasty case of FOMO.
According to Lawless, the tides have started to turn however, as new listings increased in the later part of the year.
The average time on market is beginning to increase, while auction clearance rates have trended down. The combined capital cities clearance rate hit a record high 83.2% in the first week of October as COVID restrictions eased across the major capitals, but averaged just 63.8% through December.
“As new listings continue to rise, and demand eases, we should see advertised stock return to more normal levels, providing buyers with some renewed leverage”, he said.
“Homes are not likely to sell as rapidly and clearance rates are more likely to hold around average levels as housing conditions normalise.”
COVID remains the biggest wildcard, especially given surging case numbers related to the Omicron strain. A return to restrictive policies, especially those that prohibit movements or home inspections, would result in a new phase of temporary disruption to transaction activity.
“However, such a scenario may also prolong expansive monetary policy and low interest rates, which helped sustain housing demand through 2021”, Lawless suggested.
“An early lift in interest rates and tighter credit policies are the other downside risks for housing. An early lift in the cash rate implies the economy has improved enough to tighten monetary policy, however housing markets are likely to be sensitive to any increase in the cost of debt.
“Similarly, a further tightening in housing credit policies would also act as a dampener on housing activity.”
The research also indicates that more diverse performance is on the cards. The second half of 2021 highlighted a growing disparity between the performance of different capital city and regional housing markets.
Summing up, Lawless believes that trends in labour markets, demographic patterns, supply levels and affordability will all play a key role in how housing markets perform around the country.
“Although there are some headwinds building for the housing market, we expect national housing values will continue to rise in the short term.
“Even if interest rates rise earlier than expected, it is likely to be a gradual process. The cost of debt is likely to remain well below long term averages, continuing to support housing demand for an extended period of time”, he concluded.
