Many of the economists making forecasts about property are claiming that house prices will fall next year, but I’m convinced prices overall will rise in 2023.
Those economists, I should point out, are the usual suspects who have terrible track records in forecasting real estate outcomes, partly or largely because they think that interest rates are the only factor in play.
It’s kindergarten analysis by the same people who early in 2020 forecast a property crash and what we got instead was a property boom.
We like to think that we’re more knowledgeable and sophisticated here at Hotspotting.
So our forecast for next year is that, overall, property prices will rise – not everywhere, of course, and not by the same level of growth across the nation – because we don’t have a single market in Australia.
We have many thousands of markets, all fundamentally driven by events in the local economy.
But our general position is one in which house prices and apartment prices are more likely to be rising than falling.
Here are some of the key factors that will have an influence.
The biggest one is that we fundamentally have a major shortage of homes in this country.
We have the lowest vacancy rates ever recorded in Australia and the unique situation where vacancies are below 1% almost everywhere across the nation.
As a result, rents are rising strongly in most locations – by more than 20% per year in many instances.
What we have is a chronic rental shortage crisis nationwide – and it will get more severe before it improves because there are no short-term solutions in sight.
The organisations which represent builders and developers have recently provided forward estimates which confirm that the nation is currently building too few homes, based on the needs of the population – right now and for the next couple of years.
The Federal Government has proposed building a million new homes over five years – but that doesn’t start until 2024.
In the meantime, we have a serious shortage of homes, made worse by builders going broke on a weekly basis and major developers deferring or cancelling big projects because of delays and cost escalations.
At the same time, our international borders are now open again and overseas migrants and students are pouring back into Australia.
And the Federal Government says it will lift the migrant intake – an additional 35,000 people in the current financial year.
The big question is – where will they all live, at a time when we have a shortage of homes and record low vacancy rates?
All of this puts huge upward pressure on rents – but also on property values overall.
At the same time, we have a huge program of big infrastructure developments happening across Australia.
The new Federal Budget has curtailed some of those projects, but the program of projects under way is considerable – creating economic activity and jobs and, out of that, demand for real estate.
The infrastructure program will be turbocharged by the fact that Australia is hosting five global sporting events in the next 10 years – a Commonwealth Games, two rugby world cups, a football world cup and an Olympic Games.
The investment, economic activity and employment already being generated by that is considerable – and it translates into real estate demand in specific locations.
Also, we still have considerable government stimulus in the system boosting demand for real estate, including the regional boost for FHBs.
And we also have another intangible but very relevant factor in play: in times of economic disruption, real estate in Australia tends to thrive.
We have seen multiple examples of this in the past 20 years or so.
At the start of this century, we had 9/11 and the dot.com crash, causing major economic disruption worldwide, with impacts in Australia.
At that time, we had a real estate boom which lasted 3-4 years.
In 2008, the world experienced the GFC. Back then, the usual suspects predicted that Australia property values would crash by as much as 40% – but property prices rose in 2009 and 2010.
When Covid hit Australia early in 2020, the usual suspects again forecast big decreases in our property values but what we got, instead, was a property boom.
The message, repeatedly, is that when there is major economic uncertainty, Australians put their faith in bricks and mortar – and real estate values rise.
We’re at another point of major disruption, both here and globally. I expect Australians will once again turn to the investment type that doesn’t let them down, residential property.
Next year – which is only a few months away – we will be in new territory.
The cycle of rising interest rates will be largely behind us, markets and consumers will have absorbed all that, adjusted and moved on.
The reality will be a serious shortage of homes amid rising demand from a variety of sources, including the rising migrant intake.
It’s a recipe for prices to rise – and that’s what we expect to happen in 2023.
