Australian property in 2023: Experts reveal what will help and hurt the market this year

After a year spent under a cloud, property markets could be in for a brighter 2023. From Covid-19 in China to a mortgage cliff, this is what buyers, sellers and renters should know.

There might have been a cloud over the market last year, but experts believe it could soon be in our rear vision mirror.

A lot of factors can impact Australia’s real estate markets across a year, and as we kick off 2023 buyers and sellers will need to be across some of them.

From interest rates to what sort of homes will be in demand, and who will want them, these are the major variables that could affect your plans.

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INTEREST RATES

Ray White chief economist Nerida Conisbee said mortgage costs would likely rise after figures released this year indicated 2022’s eight interest rate hikes had yet to rein in inflation.

“That’s not great news for anyone with a mortgage, but for buyers it does mean the market will remain relatively weak,” Ms Conisbee said.

“So from that perspective it’s an easier market to contract in. But if you are someone who needs to borrow a lot, that will be quite different to those with a lot of cash or assets they can draw upon to buy.”

Some people’s home dreams will be more sensitive to interest rate moves than others.

She noted those hoping to buy a bigger home would have more time to plan their next move in a buyer-friendly market, though sellers would need to be realistic and flexible.

Mortgage Choice broker David Thurmond said he did not believe there would be more interest rate hikes this year, but there would still be impacts from last year.

“People who had been talking about upgrading might not be able to do so,” Mr Thurmond said.

“Our clients are being assessed on a 7 per cent mortgage rate at the moment. So the borrowing capacity is still an issue, and will be until rates drop or people earn more.”

This could translate to less stock being available as would-be upgraders held off from listing their home.

THE MORTGAGE CLIFF

A businessman with a ladder looking up at higher interest rates.

Mr Thurmond said estimates suggested anywhere from 25 per cent to 50 per cent of mortgage holders were on a fixed rate that would expire in the next 12 months.

“And the biggest proportion will be in July and August,” he said.

He advised anyone currently on a fixed rate to contact a mortgage broker as soon as possible to discuss options that would help them avoid being forced to sell.

Ms Conisbee said that she was not expecting people exiting fixed rates who have thus far avoided the rate hike pain to cause a surge in sales. “They have had a lot of time to get their finances in order,” she said.

MARKET MOTIVATION

Real Estate Institute of Australia president Hayden Groves said while ongoing weakness was likely in the property market early this year, the end of interest rate hikes would usher in some stability to the market.

“People don’t need to be fearful of property values spiralling down for the rest of the year if they buy now, and the cost of buying isn’t necessarily likely to rise in the next 12 months,” Mr Groves said.

A more balanced market should broadly benefit those buying, even if they also have to sell.

While that might help motivate buyers, until price rises resume the number of homes for sale is unlikely to change much – limiting choice.

Mr Thurmond said he expected first-home buyers would be the “big star” for the next year or two, which boded well for those planning to sell more affordably priced homes.

This is as expansions in federal government support schemes for affordability-challenged buyers, an election in NSW that already has housing policy tweaks on the table and Victoria boosting its co-buying scheme last year were all good news for 2023 market entrants.

POPULATION GAIN MEANS RENT PAIN

International migration is back on track in Australia, which is good news for homeowners — especially landlords.

With international migration back on track after a pause during the pandemic, population growth has resumed nationwide – and China’s recent decision to relax its Covid response is likely to compound this.

In 2023 the big impact will be for tenants who can expect rising competition and costs for rentals, according to Ms Conisbee. Migration could impact home prices in about 12 months time, further good news for those who buy in 2023.

Mr Groves said these factors could also bring more investors back to the market in the second half of the year.

BUILDING A NEW TREND

The cost of building new homes rose rapidly in 2022. As we head into a new year, it is more likely those costs will moderate.

Ms Conisbee said it was unlikely they would fall enough to stimulate significant extra demand, which with population increasing adds to the prospect of home values rising in the coming 12-18 months.

High building costs are also likely to continue driving demand for renovated homes.

However, Mr Groves said any freeing up in trades could make homes in need of a reno more palatable to buyers.

Expectations the building sector could slow in the coming year might give buyers more confidence to purchase a home in need of renovation, or one to replace with a new build.

UNEMPLOYMENT

One of the big factors for the market this year will be impacts to employment as the economy slows.

In the US, Ms Conisbee noted there had been tens of thousands of lay-offs by tech firms after significant rate hikes.

While she was not expecting a similar issue in Australia, if it does emerge there could be a pick up in listings and even a reduction in home values in affluent postcodes.

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