What’s actually happening in Australia’s property market in 2023?

Inflation and Interest Rates

To get the obvious out of the way: we are not in a normal situation, the COVID19 pandemic is still impacting markets all across the world, and energy prices are soaring due to international conflicts. These will inevitably influence our economy and, of course, the price of houses. The other issue at hand is an unruly rate of inflation, and central banking institutions across the globe - including Australia’s RBA - have been forced to respond with hiked-up interest rates. That means borrowing from the bank gets more expensive, but your savings account grows faster. 

Central banks do this to ‘cool down’ the market. When inflation is too high, it can either be due to overly-aggressive demand or a lag in supply (to put it simply). Recently we’ve been dealing with both, due to reasons mentioned earlier. On the first Tuesday of every month the RBA updates the ‘Cash Rate’ (the interest rate that banks pay to do inter-institutional and government trading), which sets the bar for Australia’s banks to determine how their own interest rates should change. When borrowing is more expensive demand should reduce across the economy, as people are less likely to whip out their credit card or finance a large expense etc. This, in theory, should eventually lead to prices falling to meet a new equilibrium with a tempered demand.

This bout of inflation started to climb around March 2021, and the RBA started implementing Cash Rate increases in May of 2022, so why are we still seeing inflation on the rise? The practice of modifying interest rates to maintain control over the economy is called Monetary Policy, and unfortunately it’s a slow process. According to the RBA, it takes about three years for monetary actions to realise their full effect on the market. In addition, those deploying monetary policy must also contend with other forces in the economy - a massive decrease in energy supply, for example.

All this is to say that borrowing is expected to stay expensive for a while, and the RBA doesn’t look like it’s slowing down the Cash Rate increases any time soon. In less than a year the Cash Rate has increased from 0.1% to 3.6%. Bear in mind the the RBA dropped the Cash Rate from 0.75% to 0.1% over the course of the pandemic, and the last time they increased the Cash Rate was in 2010 - following a series of Cash Rate drops to compensate for the GFC (among other things).

Housing Value And Consumer Confidence

So what are the banks saying? According to Westpac, national dwelling values were down 1% in January 2023, marking the “ninth consecutive month of declines”. That figure represents the total value of residential properties across the country, which is now 8.9% below its April 2022 peak. The decline isn’t isolated to any one part of the country either, every capital city posted a decline in dwelling values in February 2023, with Hobart and Brisbane leading the loss with -1.7% and -1.4% respectively. Westpac says market activity is unlikely to return to average levels for a while, in regards to both listings and purchases, at least until consumer sentiment starts to improve.

Consumer sentiment, sometimes also called consumer confidence, is a statistical measurement taking into account how consumers feel about the state of the market and its potential direction. Typically when consumer sentiment is low, people are more conservative with their money, spending less and saving more. The metric is sort of like a pub test of the economy. According to ANZ’s survey (published March 21, 2023), we’ve now entered our fourth consecutive week of decreasing consumer confidence. “The index, in four of the past five weeks, was among the ten worst results since the COVID outbreak," says ANZ Senior Economist Adelaide Timbrell.

"Confidence among those paying off their mortgages fell 4.3pt and are at their lowest since the beginning of the monetary tightening cycle. Confidence among renters and outright homeowners rose a little."

"The proportion of people saying it is ‘a bad time to buy a major household item’ rose to 55%, its highest since early April 2020. Confidence about current finances increased 0.9pts but was still at its second lowest level since the initial COVID outbreak in Australia."

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So is it a good time to buy a house right now? If you ask most Australians at the moment, they’ll say no - but of course the decision ultimately depends on you, your situation and the opportunities available to you. If you do buy a house right now, expect a hefty amount of interest on your mortgage (which you’ll hopefully be able to renegotiate later). While national dwelling values are low, you could be lucky enough to find an underpriced property, however you should do some careful calculation to make sure the savings will compensate for the premium on monthly installments.

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