I reckon there will be three key things to watch in 2023
So on Thursday last week, I wrapped up the 2022 property market and said that there’d be three drivers to watch in 2023.
The first of those was rents, and I talked through how a continuing surge in rental price growth will be a rocket under property prices.
Today, let’s talk through the remaining two drivers, and put some numbers on what I reckon we can expect for 2023 and 2024.
Driver #2: Lack of stock
As a general rule, property prices only fall when there’s a rush of new stock on the market, that causes a surge in supply.
That hasn’t happened. It’s not happening.
In fact, the ‘spring selling season’ this year was a total bust.
For the ten years prior to the pandemic, we always saw an increase in listings in spring. Spring sees an average uplift of 21% in new listings nationally.
But 2022 was different.
Spring came and went without the usual surge in listings. In fact, listings actually fell!
New listings added to the market in the three months to November totalled 118,734, down from 121,859 in the three months to August.
That’s the first time that’s happened since Corelogic started tracking listings data 12 years ago. It’s possibly the first time ever.
For now, vendors seem happy to ride out the cycle, and wait for prices to improve. If they think the market will turn soon, they’re probably right.
But what that means is that there’s a real shortage of stock on the market at the moment.
We’re just not seeing the “buyers’ market” that many people were expecting.
And that’s keeping a floor under prices. And as conditions stabilise and the RBA backs off on the rate hikes, it should see property price growth accelerate quickly once the market turns.
Like most things in Economics, it’s all about supply and demand.
Driver #3: Construction Crunch
It seems that every time I pick up a newspaper these days, I read about a major builder going bankrupt.
I actually made a list. In the past few months, all of the following builders, some of them giants in the industry, have gone belly up:
That’s a big list. And that’s not even counting the smaller outfits.
The big killer here is construction costs, which have exploded with Covid-related supply chain bottlenecks.
Based on ABS building approvals data, the average new house costs more than $400,000 to build – a figure a full $80,000 higher than before the pandemic:
For builders, many of which signed fixed price contacts 12 months ago, this is a nightmare scenario.
A growing number are giving up the ghost and exiting in the industry.
At the same time, new homes sales are falling quickly.
So with new homes sales falling, and nobody around the build them anyway, we’re looking at a construction crunch.
But the market relies on the flow of new stock to keep things in balance.
Without it, our already undersupplied capitals will plunge further into housing shortage.
And, coming back to supply and demand, that will see strong price pressure in the second half of the year.
A prediction?
So look, there’s still a lot of uncertainty here. These are still unusual times. I don’t have a crystal ball.
But my base case looks something like this.
The RBA gives up on rate hikes in the first quarter of 2023.
In the second quarter, house prices find a floor and turn the corner.
In the second half the year, house prices begin to accelerate quickly, on the back of the three drivers I’ve outlined above.
That will net out at something like 4-5% growth for the calendar year. But that growth will be entirely backloaded into the second half of the year.
And so we’ll follow that up with 8-10% in 2024.
As I said, there’s a lot of uncertainty in that picture.
But I am confident that the market is closing in on a bottom, that it will grow quickly on the other side, and that there’s always opportunities for investors who know what they’re doing!
DB.