2022 in Review: Floods, Election, and a continued Pandemic

We are almost 6 months into 2022, and the year has already taken a few dramatic turns. The lockdowns and natural disasters from the start of year have rocked the community, and there are no signs of slowing as the federal election looms. So, what is impacting the Australian property market so far this year? And what is next on the horizon?

Recent Migration Patterns

Since the start of the COVID-19 pandemic in late 2019, we began to see a dramatic impact on the migration patterns across Australia. As consistent lockdowns and tight border restrictions inhibited travel and movement in the larger capitals, we saw other areas flourish. The Australian Bureau of Statistics (ABS) has reported that across the 2020 – 2021 financial year, regional Australia grew by 70,900 (0.9%). In comparison, across the capital cities for that same period, Melbourne had the largest decline (-60,500) and Brisbane experienced the greatest growth (+21,900). Some of these trends can be attributed to the decline in overseas visitors but predominantly relate to internal migration losses.

Moving into 2022, Australia has experienced a somewhat return to normality. In recent months, the relaxing of COVID rules and easing of travel restrictions have had a ripple effect across the country, with many homeowners returning to the capitals. This trend is likely to continue, as the Centre for Population has projected the population growth to increase from 0.3% in 2021–22 to 1.4% by 2024–25.

Inflation and the impacts on housing

As reported in our last Property Market Update, towards the end of 2021 we saw First Home Buyer activity plateauing. This was a direct impact of other buyers and investors coming back into the market, creating more competition, and driving up prices. Since this report was released, we have continued to see median house prices grow, which has prompted an increased demand for units – over and above houses. Current and potential homeowners are left with two key questions – what is the comparison of mortgage payments to rent and what are the mortgage payments in contrast to wages?

The latest ABS Consumer Price Index statistics for March 2022 show a 2.1% rise in household inflation this quarter. Some of the key data from the report are:

Next to transport, housing had the most significant change at 6.7% comparing March quarter 2022 to same time last year
New dwelling purchase by owner occupiers rose 5.7%. This was the largest rise since the September 2000 quarter, following the introduction of the GST.
Rents rose 0.6%, the largest rise since the September 2014 quarter.

Overall, inflation figures are being reported by the ABS as the highest recorded since 2009, post the Global Financial Crisis.

How will the rise in inflation impact interest rates?

The Reserve Bank of Australia (RBA) has indicated a potential interest rate hike, after keeping rates on hold at a record low for a significant period. Their latest April Monetary Policy Minutes detail, “Inflation had picked up and a further increase was expected, with measures of underlying inflation in the March quarter expected to be above 3 per cent. Wages growth had also picked up but, in aggregate terms, had been below rates likely to be consistent with inflation being sustainably at the target. These developments have brought forward the likely timing of the first increase in interest rates.”

Whilst the RBA board will most likely wait until June, after new ABA data has been released, they have come under criticism from economists by delaying until after the election has occurred. Dr Shane Oliver from AMP Capital explained, “The likely further blowout in Australian inflation means that Australia is now starting to face the same risk as in various other countries; that inflation expectations will get out of control, locking in higher than target inflation, making it even harder to get inflation back down again.”

These concerns centre around the fact that higher interest rates will cause a decline in property prices as people are unable to borrow as much. A secondary reaction that high interest rates may trigger, is the potential for people to default on their loans and create forced selling. Longer-term this may mean we see a reversal in the property market to what we have experienced of late – less demand and an increase in supply.

Looking forward

Many will be eagerly awaiting the outcome of the election as Australian’s head to the polls in May. Beyond the policy initiatives that the winning party will bring into place, there are numerous other factors that will shape the property market in the second half of 2022. In the upcoming weeks we will see what is in store from the RBA and how this will impact our industry long-term.