Will The Australia Housing Market Crash In 2022?

Upon soaring by a hefty 22% in the year 2021 – the fastest annual inflation since the end of the 1980s – Australia’s property price surge is quickly losing steam. Price inflation in Australia’s major and most expensive real estate markets, Sydney and Melbourne, has already slowed to a halt, increasing just 0.40% and 0.25% in 2022, respectively.

This deceleration in the two largest cities has, in turn, slowed nationwide residential revenue growth. However, regional marketplaces like Adelaide and Brisbane remain strong.

Robert Kiyosaki’s Concern 

Robert Kiyosaki, the author of the bestselling novel “Rich Dad, Poor Dad” warns Australians to brace themselves for a global recession, predicting a downfall in the housing prices. He further warns through tweets that there will be a burst in the ‘biggest bubble in history,’ causing stock markets and real estate to plummet. 

Kiyosaki’s bestseller from 1997 on property investment talks about how the boom of Australia’s real estate market depends majorly on the RBA’s money invested into the system. 

Due to Russian invasions in Ukraine, world oil prices witnessed the highest in the last 14 years, contributing to the worldwide inflationary pressure. Rising inflation will add to the increasing interest rates in 2022. Commonwealth Bank predicts a drop in property prices in the two main cities, Sydney and Melbourne. 

Mortgage Rates On A Surge

According to the best real estate consulting firms, sky-rocketing mortgage rates are among the primary causes of decelerated property price trends. And although the Reserve Bank of Australia (RBA) had lowered the cash rate to 0.1%, floating mortgage interest rates have climbed higher.

One year ago, the average shareholder mortgage rate was only 2.1%. The average interest rates on this kind of mortgage have now soared to 3.5%.

Several analysts at various property advisories say that such a sales reversal will significantly impact the income effect. It will also affect the work market as falling real estate prices have substantial consequences in Australia, in which construction seems to be a big employer. 

Rapidly Increasing Property Prices 

According to the best real estate consulting firms, rising property prices are not healthy. Among the most current statistics of September, the country’s debt-to-income ratio has surged to nearly 185%. Moreover, the possibility of the first-rate increase since 2010 suggests that higher mortgage costs would feed into a market crash even more.

Bloomberg Economics predicts that Sydney will be Australia’s lowest real-estate market in the year, with a 3% decline. According to Commonwealth Bank, the drop will be similar. National Australia Bank predicts that the downturn will start in 2022 and accelerate in 2023, with a drop of 11.4% in 2023. AMP Capital predicts a 1% drop in 2022 and a 10% drop the following year. At the same time, Westpac Banking Corp. predicts a plain result in 2022 and a 9% decline in 2023.

Australia’s best real estate consulting firms also concluded that the real estate market has been on the verge of such a “turbulent” change in price. This is because of the increasing interest rates and COVID-19 reducing initiatives that threaten to bring the surge to a finish.

Senior economists at the industry research of IBISWorld anticipate that Australian property prices will go down by 5.2% in this session. Certain areas – like Sydney’s suburbans are set to decline by much more than 9.2%. The anticipated drop is seen after the property prices increased by 18.1% within last year, the greatest annual boost in the country’s history.

Predicted Inflationary Pressures

With property prices continuously rising, although, at a slower pace, affordability of properties or buying property in Sydney might become difficult. This could deter potential customers due to the expected interest rates rising in 2022-23.

Recently released forecasts from financial markets suggest that the RBA would raise cash rates by 2.15% from June 2022 to June 2023. That would account for an increase of nine different interest rates within a year. Also, this would be the fastest increase in rates worldwide. 

Australian property prices will plummet if the RBA raises cash rates in balance with the market expectations. 

The Market Is Uncertain 

The credit for Australia’s soaring real estate investment opportunities and consequently the housing boom can be given to the record-low lending rates. These were reduced to 0.1% by the RBA in response to COVID-19 uncertainties. This would create an unrepairable path for the economy. 

With the rapidly rising inflation, RBA might well be compelled to increase rates sooner than several people who could not step into the market when it was profitable due to a lack of professional home buying assistance. 

The best real estate consulting firms in Australia also warn that stringent lending standards would almost aggravate soaring mortgage interest rates. This is because the increasing interest rates would then occur at a moment when the housing debts are at an all-time high. 

The real estate market of Australia has predicted a sharp hike in interest rates for the coming year. But it does not guarantee its occurrence. It is the RBA who is the controller. 

Conclusion 

RBA has continuously stated that until Australia sees an excess in yearly wage growth by 3%, it will not raise the rates. Hence, it is predicted that the initial rate upsurge won’t happen until the end of 2022. 

Since Australian homeowners are extremely sensitive and beholden towards any small or big rate fluctuation, the relation trade will be much shallower. It might be somewhere around 1%. 

The Russian-Ukraine disturbances are also said to have put the economic growth into a slump. This would lead to the RBA providing monetary stimulus instead of tightening. 

However, a strikingly sharp increase is bound to crash the real estate market and the economy as well. This is why the RBA will not raise rates this early and not as much as the market is predicting. 

To gain deeper insights into the Australian housing market, you can approach Quarter Acre, Sydney’s leading property advisory firm.