Over the course of 2022, we’ve seen a buyer’s market emerge, with listings up, sales volumes down, and property values falling. Admittedly, new buyers (or those refinancing) have to clear quite a few lending hurdles first – but once their finance has been approved, conditions are in their favour. What might lie ahead in 2023?
In my view, the general outlook for the housing market remains weak, especially in light of the Reserve Bank’s predictions that the economy will enter a recession in 2023, inflation won’t start to ease until the second half of next year, the official cash rate (OCR) will rise to 5.5%, and that the unemployment rate will increase. A higher unemployment rate and the risk that typical mortgage rates rise above 7% can create a tricky situation for the property market.
However, there are some caveats to note. Most importantly, at least for now, there doesn’t seem to be a major risk of large-scale job losses. Indeed, the rise in the unemployment rate in 2023 could be more about a larger labour force. Of course, being new (or returning) to the jobs market and unable to find a position won’t do much for borrowing ability or house-buying demand. But at least for those already in a job, this should be a buffer against financial stress.
There is also a risk that the previous increases in the OCR could hit suddenly and significantly in the early months of 2023, which might remove the need to tighten monetary policy as much as is currently anticipated. Of course, there’s no free lunch. That scenario might well involve a lower peak for mortgage rates, but it may also mean a weaker labour market and more job cuts.
So how might all of this play out...
