2023 Property market outlook

The sun is setting on the horizon, sky is blue and orange, with houses and trees



Property market 2022 was challenging for property investors but it’s drawing to a close, it’s time to consider the factors driving the Australian property market in the year ahead. We discuss below what property investors should expect in 2023.


It won’t surprise most investors that the number one factor influencing the 2023 property market outlook is interest rates. After the recently announced 25 basis point increase in December, the RBA’s cash rate is sitting at 3.1%, the highest rate since 2012. And there are probably more rate rises to come. Most forecasters expect interest rates to peak at 3.6-3.85% in the first half of 2023. In other words, the RBA is widely expected to raise rates by 25 basis points up to three more times.


So how are higher interest rates likely to impact property values?

The main impact of higher interest rates tends to be an increase in mortgage distress and an associated increase in the number of sellers across the market. The RBA estimates 35% of outstanding housing loans are on fixed terms, with two-thirds of these loans moving off their fixed terms in the year ahead. That means a significant portion of home owners are on track for a large increase in interest costs, hence the risk of an increase in mortgage distress.


Now for the good news.

With Australian unemployment at a generational low of 3.4% (in October), the risk of a significant rise in mortgage distress remains relatively low despite the outlook for interest rates. This is evidenced by the fact (according to the RBA) the median variable mortgage rate borrower has enough cash saved in their offset/redraw accounts to cover 20 months of mortgage repayments. That’s a comfortable buffer which suggests there’s a relatively low risk of a surge in forced sellers across the market.

There’s also good news in the supportive backdrop of relatively low advertised property stock levels. The market’s inventory levels remain well below historic averages and are likely to remain so in the year ahead. This suggests the market is more likely to be under than over-supplied in 2023.


So how do these positive and negative factors translate into a net 2023 outlook?

On balance, the outlook for Australian property is neutral to weaker in the very short term. The impact of higher interest rates is expected to be negative in the first half of the year and is likely to be partially offset by the relatively strong economic and market backdrop. The key point for investors to be aware of is that interest rates are likely to peak during the first half of 2023, which bodes well for Australian property thereafter.


As a result, a neutral to weaker short term outlook may be good news for longer term investors. As Landen’s Director Rashed Panabig explains:

‘The first half of 2023 is likely to see a continuation of what we’ve seen in the second half of 2022. With Australian dwelling values already 7% below their April 2022 peak, we wouldn’t be surprised to see the market stabilise or slightly decrease further in the first half of 2023 as the impact of higher interest rates filters through. For savvy long term investors, as most of our clients are, this outlook offers a valuable short term opportunity to buy property at an attractive discount. Clients who take advantage of these relatively rare windows of market weakness tend to perform strongly longer term.’