It’s been well broadcast across the media that 2022 was a challenging year for Australian property investors. According to CoreLogic, Australian housing prices fell by 5.3% in 2022, the first year of negative annual returns since 2018. Not surprisingly, many investors are asking themselves if now is a good time to buy an investment property.
Will the market recover in the year ahead or should investors wait for the market to bottom?
Let’s delve into what the property market’s main macroeconomic market drivers, interest rates and inflation, are telling us about the outlook for property.
First, the not-so-great news. With Australian inflation running at 7.3% in November and well above the RBA’s 2-3% target, more interest rate increases are likely to be on the cards.
Most forecasters are expecting two or three more 25 basis point interest rate rises during the first half of 2023, bringing the RBA’s cash rate to 3.6-3.85%. With 50-75 basis points of interest rate rises likely coming and the effect of recent rate rises still filtering through, it’s reasonable to expect further property market weakness during the first half of this year.
With more market weakness expected in the next few months, you may assume it’s prudent for property investors to stand back and wait. However, history teaches us that periods of property market weakness tend to be short term affairs which are generally shown to be buying opportunities with the benefit of hindsight. Once the RBA pauses its interest rate rises in the coming months, it’s likely there will be considerable pent-up demand for property driven by rebounding net immigration rates, natural population growth, and an increase in the number of renters hoping to buy. At the same time, market supply is expected to remain constrained. So once the RBA pauses its rate rise cycle, market confidence is expected to return leading to the property market beginning its next upward leg.
Underestimating the buying timeline
It’s also worth remembering that buying property is a lengthy process that involves lining up a lot of ducks. For example, you need to search for and identify the right property to buy, reach an agreement with the seller, and sort out your finances.
With so many steps involved, it often takes property investors 3-6 months to complete a property purchase. Underestimating the amount of time this process can take is where many property investors hoping to time the market fall foul. The key point to remember is that if you’re aiming to buy into the expected market weakness during the first half of 2023, you need to get moving now.
As Landen’s Head of Property, Shane Harding explains: ‘We’re viewing the first half of 2023 as one of the greatest opportunities for property investors to buy in recent years. After a weaker market in 2022 and further expected weakness in the first half of 2023, we’re expecting the Australian property market to strengthen from the second half of 2023 onwards. In our experience, once the RBA hits pause on its rate rising cycle the property market is likely to resume its upward trajectory without looking back. Investors who take advantage of the current market weakness are positioning themselves to perform strongly longer term.’