Property data expert reveals 2023 market forecast

Last year, Australia’s property market was severely impacted by housing supply shortage, successive interest rate hikes, and a catastrophic rental crisis. This year, the market will improve across most of the nation, but it may take some months before we see signs of recovery, a property data expert has predicted.

“Analysing market data and trends, we predict the rental crisis will continue, if not worsen, in 2023, with rent prices set to rise by at least 10% in most Australian cities,” said Arjun Paliwal, founder and head of research of buyer’s agency InvestorKit. “For those looking to buy or sell, expect to see a gradual recovery in national house prices in the mid-to-later half of the year. It’s also welcomed news for first-home buyers in NSW who will have the option to pay an annual land tax instead of an upfront stamp duty fee, which may see them buy their first home sooner.”

Paliwal revealed six property trends that can be expected in 2023:

1. National house prices will show signs of recovery from April to July, but with Sydney and Melbourne to see a slower rate of recovery.
   “The latest October ending data reveals there were just 236,000 listings for sale; our housing supply levels remain constricted,” Paliwal said. “We are seeing roughly the same amount of listings for sale as 12 years ago, which is concerning. This supply and demand is what will ultimately drive up house prices.”
2. More first-home buyers will enter the NSW property now that the state government’s stamp duty reform is in effect, as a one-off stamp duty cost has long been a barrier preventing them from buying sooner, Paliwal said. He believed other states will be encouraged to follow suit if the scheme proves successful. 
3. The national vacancy rate, currently sitting at 1%, will remain at crisis levels throughout the year, while rents will rise by more than 10% across the majority of Australian cities. Contributing further to the crisis will be population growth due to borders reopening, with Barossa Valley, Adelaide, and Toowoomba (each with a vacancy rate of 0.4%); Rockhampton (0.5% vacancy), and Tasmania’s Burnie (0.1%vacancy), the regional areas Paliwal said would likely be the most affected. 
4. Given the substantial interest rate rises experienced last year, Paliwal said there would likely be rate cuts in the last quarter of this year. “The significant interest rate hikes have severely reduced credit take up, which means the RBA will need to balance credit flow, unemployment, spending and inflation, as we expect those things to worsen over 2023,” he said. “The RBA will realise their increases have been overshot, and as a result, lowering the cash rate in the final quarter of 2023 may prove to be their only move.”
5. Lower borrowing take-up due to surging interest rates will force banks to consider changes to their servicing in line with APRA support, Paliwal said.

“With home loan serviceability now calculated based on an 8-9% interest rate, scaring off borrowers from applying while others are being rejected for more expensive mortgages, the banks will need to find a way to bring borrowers back as borrowing capacity declines and shrinks credit up-take,” he said. 

Banks like NAB have already led the way for investors through how they calculate rental income.

6. Smaller regional centres will continue to see strong capital growth, driven by record-low vacancy rates, an undersupply in houses for sale, relative affordability, and strong local economies, Paliwal said.

Some standout regions predicted to see strong capital growth this year include Townsville, Toowoomba, Rockhampton, Bundaberg, Albury-Wodonga, and the Barossa Valley.

“In Bundaberg, the median house price has increased significantly by 5.5% over the quarter to September and sales asking prices have also increased 3.1% between September and November alone,” Paliwal said. “The number of properties for sale in October is 49% lower than pre-pandemic levels two years ago, and it has a low rental vacancy rate of 0.6%.”

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