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?
The big question in 2023 is whether the market will recover in the year ahead or if investors should wait for the market to bottom out.
To address this, it’s important to delve into what the property market’s main macroeconomic market drivers are as well as interest rates and inflation, to see what they are telling us about the property outlook for this year. First, the not-so-great news. With Australian inflation running at 7.3% in November 2022 and predicted to rise to 8% in 2023, it is well above the RBA’s 2-3% target with more interest rate increases 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 this year, 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 2023.
With further interest rate rises expected in the next few months, you could assume it would be better for property investors to hold off during this period. Historically however, market cycles show periods of property market weakness tend to be relatively short term and, with the benefit of hindsight, a good opportunity for investors to buy. Once conditions improve, and the number of interest rate rises decreases, in all probability, rebounding net immigration rates, natural population growth, and an increase in the number of renters hoping to buy will add pressure on the demand for property. 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 shift.
As North Homes’ Director, Jim Dionysatos explains, “Given the cycle for the Australian property market looks set to strengthen in the second half in 2023, and interest rates will most likely have peaked by then, we see the first half of this year as one of the best opportunities for property investors to buy in recent years. Taking advantage of weaknesses in the current market can place them in a position where their investments perform strongly longer term, as generally, when the RBA pauses its rate rising cycle, the property market rebounds to resume its more competitive conditions.”
One of the commonly overlooked elements of investing in property is how long the whole process actually takes as many factors have to align at exactly the right time. For example, you need to search for and identify the right property to buy, you need to reach an agreement with the seller, and you need to sort out your finances. With so many steps involved, it can take 3-6 months to complete a property purchase, so if you’re looking to time the property market to take advantage of conditions in the first half of 2023, you will need to not just start planning now, but also be putting those plans into action – sooner rather than later.