A lot can happen in just 12 months.
Take the cash rate, which started off 2022 at a historical low of 0.10%. It’s now at 3.10% – the highest point in a decade.
Increasing the cash rate makes borrowing more expensive. So that, in turn, has reduced buyer demand and sent home values tumbling in many of Australia’s property markets.
What do the next 12 months have in store?
Well, a lot depends on how high the cash rate peaks. But if the Reserve Bank keeps it below 4%, and if inflation falls to 5% (it’s currently 6.9%) and the unemployment rate stays below 5% (it’s currently 3.4%), then capital city home values could rise up to 7%, according to SQM Research’s Housing Boom and Bust Report.
In this ‘base case’ scenario, Sydney would lead the recovery with price growth of up to 9% driven by:
- Overseas migration
- Workers’ return to the office
- A shortage of rental accommodation
- The NSW government’s stamp duty reform.
Elsewhere:
- Perth’s property market would jump up to 8%
- Melbourne and Brisbane would rise between 1-5%
- Adelaide would stay flat or grow up to 5%
- Hobart, Canberra and Darwin could see prices fall or minimal growth
As the table above shows, SQM Research also models three additional scenarios: Goldilocks, False Dawn, and Recessionary Inflation.
Goldilocks is the most optimistic, with the more ideal conditions leading to the combined capital city average growing by 9%, led by Perth. Recessionary Inflation is the most pessimistic, with only Perth being immune to property price falls. Meanwhile, False Dawn is somewhere in the middle of those two scenarios.
Major bank cash rate predictions
As you can see, a lot rides on when the Reserve Bank pauses rate hikes. Here are the big four banks’ forecasts:
- ANZ: cash rate to peak at 3.85% in May 2023
- Commonwealth Bank: cash rate to peak at 3.35% in February 2023
- NAB: cash rate to peak at 3.60% in March 2023
- Westpac: cash rate to peak at 3.85% in May 2023
While only time will tell if the forecasts of SQM and the big banks come to pass, remember property investment is a long game. So it shouldn’t matter what happens to prices in the short-term.
Instead, concentrate your efforts on buying a quality property in a quality location and holding it for the long-term, as history suggests you’ll be richly rewarded.