As we approach the end of 2021, there is an opportunity to pause, celebrate the festive season and to reflect upon our successes and learnings from the past 12 months.
There is also a moment to think ahead and to make plans for 2022. To do this successfully, it is important to have an informed opinion of what may lie ahead in relation to the economy and our property markets.
Whilst no one has a crystal ball, I would like to set out what I believe lies in store for the Sydney property market in 2022.
Will growth continue?
History shows that property markets are cyclical. While understanding the drivers and acknowledging the cycles can be relatively easy, the toughest part is picking when changes will occur.
In my opinion, the first part of 2022 will continue to be reasonably strong for price growth.
Supply will be tight – just as it has been throughout most of 2021. Ironically, in the closing weeks of 2021, we have seen overall listing numbers increase considerably. The result was weaker auction clearance rates and softer price growth from the end of November and leading into December 2021.
I predict this will cause many sellers to hold off listing at the start of 2022, so expect to see stock levels drop again during this initial period.
On the flipside, buyers will return in strong numbers at the start of 2022, only to discover that there is less stock than they expected. The outcome will be a return to price growth once more.
As to how long this can be sustained will be determined by the various influences set to play out during the year.
Key property price drivers
Australian property buyers have proven in the past that an election announcement will halt them in their tracks. Australia has a stable political system where both major parties are motivated by economic growth, but buyers and sellers still seem to baulk at possible election outcomes. When the election is called, expect to see activity in the market slow in anticipation of a result, and then resume its path to make up for lost time once everything has settled down.
Interest rate movements
Our strengthening economy saw a jump in inflation in some industry sectors towards the end of this year. This prompted many to speculate that interest rate rises will come sooner than was first anticipated. If these occur before the end of 2022, there will be a cautious reaction in property markets.
The banking regulator flexed its muscles in late 2021 by increasing the interest tolerance buffer on loan applications from 2.5 per cent to 3.0 per cent per cent. This meant reduced borrowing power for many borrowers. There are predictions APRA may go even further in 2022 if runaway house prices continue to drive high demand for credit. If you are planning on buying, selling or refinancing property in the next 12 months, it will be well worth keeping an eye out for any APRA announcements.
The pandemic’s progression
While we are now progressing to the ‘living with it’ phase of the pandemic, there are still plenty of unknowns on the horizon around infection rates and hospitalisations, and how political parties will respond.
In addition, the free flow of the population both domestically and internationally will be important in maintaining price growth – particularly with Aussie expats returning.
Hard lockdowns and other moves can damage confidence, and confidence is critical for real estate.
Further infrastructure changes and the continued development around Sydney airport, for example, will continue to have an impact upon the availability and affordability of properties in certain parts of the city.
Sectors to watch
I think must-watch sectors are those affected by border control measures.
The eventual return of overseas students and skilled labour will stimulate the market – particularly for now-vacant rentals in and near our CBDs. This portion of the market has been dormant for most of the past two years, and there is a chance it will come roaring back to life in 2022.
Expect to see investors returning to the market to take advantage of these new trends.
I also think that first homebuyers, who started to gain something of a foothold in the past 2 years or so, will struggle yet again as property prices move further out of reach.
Finally, the return of expats will flow through to the family-centric property markets. Locations with good-size homes, close to great schools and facilities, as well as lifestyle benefits, will continue to be in high demand.
Changes that are here to stay
My final prediction is that some of the changes we adopted to navigate through the pandemic in the property trading arena will become permanent.
For example, virtual buying will continue to be a trend with the use of online auctions and remote inspections being widely adopted for the long haul.
Virtual buying was not a new concept, but its popularity was accelerated by the pandemic. With the ease of communication and other tech systems such as Zoom, Whatsapp, Microsoft Teams, DocuSign and others, buyers will continue to gravitate towards the convenience of ‘online buying’. Some will do it even if they’re living in the same suburb as their purchase! Virtual buying will see increased borderless investing and remote homebuying.
Finally, working from home is here to stay. The long-term impacts of this are a greater need for additional space, along with ongoing technological improvements for houses. Some areas with limited access to amenities and poor network coverage will fare worse than others as a result.
As the holidays approach, I’d like to wish everybody a very Merry Christmas and joyous New Year. Thank you all for your support over the past 12 months.
Please note that our office will be closed from Friday 17 December, 2021 to Monday 10 January, 2022.
I hope you all enjoy time with loved ones, and I look forward to speaking with you in 2022.