Will prices continue to rise, or will we see a market correction and potential price drop soon? It's probably the most asked property question at the moment, apart from when interest rates will rise again.
One could even argue it is the million-dollar question, especially as Sydney and Melbourne's median house price already exceeds that amount. Nationally, Australia's median house price has risen by an eye-watering 22.2 per cent higher over the last year to hit a new high of $994,579 in December, according to Domain's House Price Report, which is the fastest annual growth on record.
The good news for buyers is that we aren't expecting another year with growth that rapid, but the sad news for those trying to buy is that prices will continue to go up, with a few factors slowing the growth rate. We have seen predictions of 3.5 - 5 per cent by lenders such as NAB, but personally, I think it will be higher at around 6-8 per cent. Here are the six factors I believe are likely to have the most impact on house prices:
- Immigration returning and State border opening again - Once Australia opens up for business again, there will be more competition for available homes for sale. There is talk of the permanent immigration cap rising above 200,000 to combat Australia's skills shortage. And that means more competition for homes, which in turn could result in price rises. Traditionally the Christmas period is a quiet time for real estate, but this year was an excellent time to look for houses for many people.
- Uncertainty over increased restrictions with the new Omicron variant - If the new COVID strain pushes back the planned re-opening of Australia, that might slow housing price growth and reduce competition for stock. Some states like NSW are staying open, but others like WA are keeping shut for the moment.
- More houses available - In the last month or so, we have seen more homes listed for auction, but the auction clearance rate has slowed to around 71 per cent for January, well down from the preceding 3 months. Effectively, that tells us there is more stock on the market, and unless borders re-open on schedule, it may also result in reduced demand, as buyers get more choice of properties, thus slowing the growth rate. Definitely another reason for buyers to start looking around.
- Unemployment - The Australian Bureau of Statistics (ABS) official figures show the national jobless rate dropped to 4.2 per cent in December from 4.6 per cent in November. Lowering unemployment may cause further price led demand in the housing market.
- APRA and RBA changes - The RBA signalled in January interest rates may well rise 2022. Most lenders believe the RBA won't be able to hold out until 2023 / 2024 to increase the official interest rate and are predicting an official rate hike as soon as late 2022. A rise in interest rates will further slow growth, especially with the changes in lending criteria added to the mix.
- Federal Election in early 2022 - An election is a very delicate balancing act. On the one hand, both sides of parliament are keen to spruik affordable housing, which is undoubtedly shaping into a big issue in 2022. While on the other hand, they don't want to be responsible for a massive slump in house prices that causes buyers to be in negative equity as house prices tumble. For this reason, I think there will be a focus on cautious growth to appeal to the entire voting base. Commonly around election time, we hear politicians talking up affordability issues and promising to tackle them, but also providing promises to help first home buyers via grants, stamp duty exemptions, handouts, and other subsidies. Often the increase in subsidies also drives up prices.
So to answer the million-dollar question of whether house prices will rise or fall next year, I think 2022 will be full of swings and roundabouts that will slow, but not stop, growth. Potential buyers should be looking around now rather than hanging back to wait and see if prices come down because I think no matter what happens, they will continue to rise, albeit at a slower pace.