5 things you should know about the Australian property market in 2022

There are always uncertainties in the property market, but clear trends are emerging and they point to a very different picture from what we’ve seen in the past year.

From eventual rate rises to fatigued first home buyers, we cover some of the main developments in property and how they might affect you.

RBA to lift cash rate soon

While the RBA’s default setting seems to be defiantly patient, the market is convinced that it won’t be able to maintain that posture for much longer.

Underlying inflation is currently within the RBA’s target band of 2-3 per cent and unemployment is expected to fall below 4 per cent in the coming quarters — low enough to generate the wage growth the RBA has been holding out for. 

Economists at the big banks expect these conditions will force the RBA to lift the cash rate several times this year. CommBank expects the first move will come in June, while Westpac has pencilled in an August decision.

ANZ believes a September rate hike is the most likely scenario, but did not rule out the possibility that the RBA could go sooner on the back of better-than-expected wages data.

Taken together, we can hedge our bets and say that every meeting from June onwards should be considered live.

RELATED: Will interest rates go up in 2022?

Fixed rates are already going up 

The cash rate has been anchored at 0.10 per cent since November 2020, but lenders don’t need to wait for the RBA to make a move before rethinking their mortgage rates. 

The expectation that the RBA will increase the cash rate in the coming months has seen banks scrambling to revise their fixed rate options. Since December, the average 4-year fixed rate has jumped up from 2.69% p.a. to 3.72% p.a — a difference of 103 basis points.

On top of that, many of the low cost funding options previously available to banks have disappeared. 

As part of its pandemic response package, the RBA injected an unprecedented amount of liquidity into the banking system, allowing banks to take their fixed rates to record lows.

Mozo’s banking expert Peter Marshall explains that a big part of that support package was the RBA’s Term Funding Facility (TFF), which made a large sum of funding available at a reduced rate. 

“It supported fixed rates up to three years but was closed off in June 2021. The banks had drawn down more than they needed so they could keep rates lower for a while beyond the Term Funding Facility ending," Marshall said.

“There’s also the matter of international central banks raising rates due to faster and larger increases in inflation abroad. Australian banks get part of their funding from overseas, particularly the US, so they have to pay more for those funds now."

Average fixed home loan rates

Property prices to peak in mid-2022, fall in 2023

Property prices surged by more than 22 per cent in 2021, but there are signs that Australia’s property boom could soon wind down. According to Commonwealth Bank’s revised property forecast, prices will end the year flat before falling by 8 per cent in 2023.

The cooling influence will likely be stronger in Sydney and Melbourne, which are both expected to see prices fall by 3 per cent this year and 9 per cent next year. 

That could see Sydney’s median house price slide from $1,410,128 to $1,213,686. In Melbourne, the median house price could fall from $998,356 to $880,871.

While a correction of that size might not be enough to wipe out the gains from the previous few years, it can give hope to buyers who have been reluctant to purchase at the peak of the cycle.

Investor activity has risen for 15 straight months

The latest figures from the Australian Bureau of Statistics (ABS) suggest that investor confidence remained strong despite the omicron wave, with much of the growth in the home loan market coming from the cashed-up cohort.

Currently, investors make up around one third of all new housing loan commitments. Over January, new lending to investors rose 6.1 per cent, putting it at a record high of $11 billion.

“The value of new loan commitments for investor housing has grown for 15 consecutive months, consistent with the strong housing market and growth in house prices,” said ABS head of finance and wealth, Katherine Keenan.

First home buyers feeling the squeeze

The flipside to increased investor activity is a loss of confidence among first home buyers. According to the ABS, the number of new owner occupier loans taken out by first home buyers fell 6.9 per cent in January.

“This was 32.6 per cent lower compared to a year ago, when first home buyer activity was near a record high,” the ABS said.

FHB commitments were down across all states and territories, save for the Australian Capital Territory where new lending to first home buyers shot up by a staggering 25.7 per cent.

Queensland and Tasmania recorded the steepest declines at 16.1 per cent and 12.5 per cent, respectively. They were followed by Western Australia (down 8.1 per cent), South Australia (down 4.6 per cent), and Victoria (down 2.2 per cent).

For more information on mortgage and lending trends, visit our home loans statistics page. And if you’re in the market for a home loan, visit our home loan comparison page, or browse the selection below.