December 14, 2022 by Dymphna

My predictions for 2023

I reckon there will be three key things to watch in 2023

So let tell you where I think the property market is headed in 2023.

But first, a quick recap on where we are and how we got here.

So the latest Corelogic data for November showed us that property prices had now fallen 7.6% from their peak in April.

Over 7% in just seven months makes it the sharpest downturn on record.

You can see this chart here, which compares previous market downturns from their prospective peaks.

There’s a couple of things to say about that though.

The first is that this comes after property prices soared over 30% in under two years – one of the sharpest increases on record. So some consolidation was always on the cards.

The second thing to note is that, historically, when property prices fall, they don’t tend to fall that far. The biggest market drawdown in 2017 was still only just over 10%.

So based on that fact alone, you’d have to think we’re getting close to the bottom of the cycle.

But we’re not quite there yet. I’d still expect prices to fall a little further. We might even push past that 10% benchmark.

And that’s not surprising – the RBA has raised rates by a full 300 basis points in just eight months.

That’s the most aggressive hiking cycle on record, and it’s going to have an impact.

But not a major one.

And the way I see it, there’s three key drivers that are going to limit the downside, and see the property market turn around sometime in the middle of the year.

What are those three drivers?

Glad you asked.

I’m talking about rents, a shortage of stock on market, and a construction crunch. Let’s work through them:

Driver #1: Rents

The first driver is rents. While property prices rolled over this year, rental growth did not. Rental prices are still storming higher, growing at more than 10% a year.

And that’s because there’s an epic shortage of rental properties.

CoreLogic’s latest data shows that the number of homes listed for rent nationally has plunged to its lowest level in around a decade. Take a look at the chart. In 2020 there were close to 140,000 homes for rent. Now there’s about 70,000:

That’s a big fall.

And as the borders continue to open up and immigration returns in full, I don’t see rental growth slowing down anytime soon.

This is massively supportive for property prices. Rents are the return you get on your asset, and it’s the first law of finance, the higher the returns, the more your asset is worth.

More on Monday:

On Monday I’ll step through the remaining two drivers, and try and put some numbers on what the market can expect in 2023.

Tune in then.