5 economic challenges that could affect property prices in 2022

5 April 2022
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5 economic challenges that could affect property prices in 2022

We have already seen some major events impact the Australian economy in 2022. We've all seen the cost of living increasing for things like petrol, and who's weekly grocery bill hasn't increased over the past 12 months? I know mine has.

We have also seen our Major Banks lifting some of their home loan interest rates, which brings about uncertainty when it comes to home loan affordability. We are all poised to see what the RBA does with the Cash Rate each time they meet, with the inevitable rise in rate just around the corner.

We also have the news channels reporting day and night on the potential widespread consequences of the war being fought right now in Europe.

However, all that being said, it's not all doom and gloom, here in Australia we are still experiencing record low interest rates and record property prices right across our nation. 

Here are five of the economic challenges that could impact the property market throughout 2022 and into 2023:

The floods

In certain areas, the substantial floods that have hit recently are likely to affect these towns for some time. History shows that when this happens, it can take at least five years for these smaller towns to bounce back. This is exaggerated in these areas with rents typically rising as there is a shortage of homes. On top of this, for the next 12 to 18 months after the water subsides, buyers will remain spooked to purchase in the region.

Within every downturn there is an upside. What is likely to happen is that you could see property prices ease in flood-affected areas in the short term while investors whose properties have not been inundated are likely to be able to command higher rents. 

Record home values

According to the Australian Government's Bureau of Statistics, the average home prices across Australia has risen by 23.7%.  purchase price being paid for homes hit a record highs in the October to December quarter 2021, and this trend has continued in most states and territories into the January to March quarter 2022. Owner-occupiers seeking to climb the property ladder were the biggest contributor to this result. We also saw Investor loans grow, too, but funds for first-time buyers has dropped by around 30% showing an increasing challenge for the first home buyers that are trying to save enough deposit to get onto the property ladder. 

Inflation & interest rates

The cash rate has been at a record-low 0.1% since November 2020. But in the world of finance, what comes down inevitably goes back up. It is likely that the Reserve Bank will be forced to act by August, just before the spring selling season. 

If the cash rate goes up, higher interest rates will quickly follow making mortgages more expensive potentially putting a damper on the spring selling season. Homeowners with variable-rate home loans could face higher repayments.

Time to vote

For some reason, the Federal elections generally cast a shadow of doubt over the country, and we are expecting that this one will be no different. We still don't know what policies will be proposed by either party, but time will tell. We are sure that housing affordability will be the hot topic.

History shows that elections can function as a hand brake on the economy so don't be surprised if you see retail spending and property sales go into a holding pattern once the election is announced. 

Rising costs of materials and labour

Supply chain problems, labour shortages and rising timber prices have all become major contributors to Australia's rising inflation rate, currently at 3.5%. This situation may worsen due to the rebuilding required after the floods that affected some parts of South East Queensland and New South Wales in February 2022 along with the new projects that are on the horizon with the infrastructure required for the 2032 Brisbane Olympics Games. 

There is a combination of things affecting the cost of new home builds and renovations right now, including the skills shortage and increase pressure on the labour market in the construction industry. Many Australian home constructions worksites are finding it hard to complete projects on time due to the massive labour shortage in the industry, which is in turn putting pressure on the hourly labour rate having to be paid for trades. When you add the rising costs of building materials on top of this and their lack of availability, there is no wonder that we are experiencing higher build costs for anyone looking to build their dream home or renovate their current home right now. 

We hope you found this information helpful, and please remember, if you have any questions around your home loan affordability, we are here to help.

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