January 19, 2023 by Dymphna

The five drivers of property in 2023

These are the five factors to watch this year.

As we come storming out of the gates into 2023, I think there are a raft of factors lining up behind property this year.

I actually went and made myself a list. Here’s what I reckon will be the five driving factors of 2023, in no particular order.

1. Interest Rates

Interest rates always have a big impact on the direction of house prices. When the RBA started raising rates in April last year, it coincided almost perfectly with a peak in property prices.

The RBA then went on and dropped a sledge-hammer of 300 basis points on the economy through the remainder of the year. If the property market fundamentals weren’t as strong as they are, I think property prices could have closed the year a whole lot lower.

There was no RBA Board meeting in January, so now all eyes will be on the February Board meeting.

Not a whole lot has changed in the meantime. Inflation did come out a little stronger than expected, which might dash hopes that the RBA is ready to put the rate hikes back in the box.

But it still looks to me like we’re pretty close to the top of the cycle. So my guess is that it stops hiking sometime in the first half of the year. After that, the RBA will pause and take stock. And given how aggressive they’ve been, it wouldn’t surprise me if we could be looking at a small series of rate cuts kicking off late in the year.

When that happens, property prices will be given a solid lift.

2. Rents

The rental market is still incredibly tight. Corelogic data showed us that rents reaccelerated in December, and are growing at 10.2% per annum.

Given they were growing at close to 10% through most of last year, that gives us one of the most epic accelerations in rental prices in living memory.

Vacancy rates remain at record lows, so there’s just no signs that the rental boom is winding up any time soon.

Given rental returns feed directly into property prices, this will driver property prices strongly through the year.

3. Immigration

Immigration is returning in full force right now. The last estimates I saw predicted an immigration intake of a record 300,000 this financial year.

Given rental markets are incredibly tight, and there’s an ongoing housing shortage, the extra demand for property should continue to push prices higher from here.

4. Jobless Rate

At the same time, the Aussie economy continues to deliver and the unemployment rate remains at record lows. Household income is robust, despite inflationary pressures, and there’s nothing to suggest households can’t maintain their mortgage commitments. More money in more pockets leads to higher house prices.

5. Credit conditions

With an ongoing commodities boom, only set to accelerate as China reopens, money is flooding into Australia, and credit conditions are easy. There is absolutely no sign that banks are looking to rein in their exposure to Aussie property. This should mean that the mortgage market is competitive, and credit is plentiful, all of which supports Aussie house prices.

… and that’s not all.

And really I’m just listing the short-run factors. The long run fundamentals are just as supportive, like the supply-demand balance and ballooning infrastructure spending.

At any rate, these are the main five factors to watch in 2023.

My feeling is its going to be a good one.