Home loan mid-year check in: property market predictions for the rest of 2023

The year certainly kicked off with a bang. Despite interest rates climbing to an eleven-year-high, property prices made an astonishing recovery after last year’s 8% fall. Mortgage holders refinanced billions worth of home loans while average rents surged at record rates. But now, halfway through the year, the economic tide shows signs of turning. 

So what can we expect from home loans and the property market for the rest of 2023? Let’s get into the expert forecasts. 

Much debate has surrounded the Reserve Bank of Australia (RBA) and its decisions for the official cash rate. Variable rate home loans rise every time the central bank lifts this critical number, making it a great bellwether for how expensive the cost of financing a mortgage has become.

At the time of writing, the cash rate sits at 4.10%, which has created an average variable interest rate for owner-occupiers of 6.57% in the Mozo database. The RBA has held the cash rate steady for July, which may signal a slow down to the pace of rate hikes. (Though be warned, experts thought this after the April rate hold, too). 

Most property pundits agree we’re nearing the top of this rate cycle, however. While the RBA maintains they will tighten rates until inflation comes down, the economy has started to cool. Core inflation posted a tepid decline in May while consumer spending plummeted. 

According to Westpac and NAB, the RBA will make one or two more rate hikes, leaving the final cash rate at 4.35% or 4.60% by around August or September. After this, interest rates will likely hold at an elevated level until inflation returns to the 2% - 3% target band. 

If you’re planning a timeline for your home buying journey, economists suspect interest rates will come down in late 2024, which could make it an opportune time to move on your dream home. 

According to Westpac chief economist Bill Evans, the resurgence in property prices we’ve witnessed this year is not a sustainable one. Competition has been driven by an influx of overseas buyers and frustrated renters keen to capitalise on a potential rate pause. With limited supply available, prices naturally showed a rebound. 

“Rate hikes aren’t so much affecting the kinds of people buying houses at the moment,” explains Mozo banking expert Peter Marshall.

“Of course they will to some extent – I mean, if the interest rate hikes weren’t happening, house prices would be going through the roof already, but the rate hikes are just keeping that a bit slower than it would be otherwise.

“Buying a house is a long-term proposition, and the future of rates is probably – for the people who can afford to handle their repayments now – a relatively minor issue.”

Most of the buyer frenzies have taken place in Sydney, whose insane market alone accounts for most of the autumn price spring. However, once those cashed up buyers have settled from the market, national property prices will lag as rate hikes make servicing a home loan unaffordable. 

First home buyers have always made the most sturdy bulk of the property market, says Evans. Their activity is the more reliable indicator of where Australian property is headed – not the passions of investors.

Housing pressure has hit landlords and renters, too. According to Domain, tight supply and historically low vacancy rates have skewed the 2023 rental market in the landlord’s favour, since they can easily boost the asking rent price of properties in premium areas. 

Landlord have also passed along interest increases in their mortgages to tenants, meaning RBA rate hikes aren’t just a pain for home loan borrowers. 

The problem of rent hikes may get worse before it gets better. While governments have been timidly paving the way for greater renter protections, they won’t come swiftly enough for those who need it most. If you’re saving for a home loan deposit but currently renting, you may find yourself set back a little. Saving money on rent will be half the battle for the rest of 2023.

The RBA walks a narrow path with its interest rate hikes, meaning behind every decision there’s a danger the bank could overdo it and crash the economy. 

Recessions are notoriously bad for home loans and property prices. Job losses making financing a mortgage harder while falling home values could cause many to lose equity – which can become dangerous for mortgagors with high loan-to-value ratios. If your home loses too much value, you could slide into negative equity. This can trap you with your mortgage and make refinancing to escape extremely difficult. 

A recession isn’t a certainty, however, and for now employment rates remain strong. It’s always a good moment to look at your finances, see how a recession could affect you, and take steps to safeguard your home equity if you can.

Last year, buyers were spoiled for choice – the sheer number of homes for sale meant they could compare and bid on the ones that most suited them. But since profits began to stall, vendors have been hesitant to sell, meaning supply is a significant issue if you’re looking to buy in 2023. 

According to CoreLogic executive research director Tim Lawless, the volume of capital city homes advertised for sale is over a quarter below the five-year average. Construction has also sputtered out amid material and labour shortages, and dwelling approvals lags severely. With no homes for sale – and no new ones in the works – even lukewarm demand increases price competition. 

While buying off market property remains an option, buyers hunting their dream home in the rest of 2023 may have to look further afield – or play the waiting game for now.

Compare low interest rate mortgages in the table below.