Aussie housing outlook: Micro markets becoming impossible to predict as investors increase market share

Who is buying Australian property has shifted in the last 12 months, with the proportion of owner-occupiers declining from 72 per cent to 65 per cent, as investor purchases increased from 28 per cent to 35 per cent.

PRD’s Real Estate Australian Economic and Property Report 2022 released today revealed that although capital city markets overall saw a slowing pace of median house price growth in the 12 months to June 30, individual cities with their own micro markets behaved in their own independent ways.

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PRD chief economist, Dr Diaswati Mardiasmo, said the up tick of investors at least gave hope to those facing rental shortages.

“People can’t find rentals and rental yields have gone through the roof, so there’s a push for investors to come back into the market, particularly in regional areas,” Ms Mardiasmo said.

“It’s also happening in some metro markets where vacancy rates are at 0.3 or 0.4 percent.

“On the flip side, and this will depend on the area, investors are asking themselves if the demand is strong enough versus the cost of being an investor.

The cost of being an investor is not just the mortgage payments, but as Ms Diaswati points out, a lot of councils are increasing their rates and body corporate costs are going up, as are utilities and insurance.

“Because of the shortages you are seeing investors playing in the market and even increasing their presence, but it’s really on a market-by-market basis,” she said.

Dr Mardiasmo said the report unearthed a few unique findings in an unparalleled economic climate.

“We’re really discovering how resilient regional areas are now. In terms of the hits and shocks, compared to capital cities, regional markets still returned double digit growth in the 12 months to the first half of 2022 consistently across all states,” she said.

PRD data for the first half of 2022 showed capital city growth in median house prices was all over the place, with -1.3 per cent for Sydney, -2.2 per cent for Melbourne and -5 per cent for Adelaide.

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In contrast, Brisbane was still up 25.3 per cent, Perth up 9.3 per cent and Hobart 6 per cent and Darwin 12.3 per cent. In the regions, all states recorded double-digit growth apart from the Northern Territory.

What also stood out for Dr Mardiasmo was the diversity of supply and demand in individual markets.

“The playground property is now so fragmented, depending on what the supply and demand is in any one particular area. I’ve never before seen such a fragmented marketplace.”

“2022 brings new challenges to the property market, on top of issues faced in 2021. The Reserve Bank of Australia has changed its policy stance, while the Federal Government has not,” Dr Mardiasmo said.

“As a result, each property market is reacting differently to the current forces at hand. “Depending on demand and supply, the market can still be growing, holding steady, or turning to a decline”.

Consumer confidence took a 180-degree turn during the 12-month period. The first half of this year saw confidence decline to below the 100 index point positive benchmark, to 88.4 index points – on par with confidence experienced during the peak of Covid uncertainty in June and July 2020.

The Time-to-Buy Dwelling Index (compiled by Westpac along with the Melbourne Institute and referenced in the PRD study) suggests a divergence, decreasing markedly in Queensland and Tasmania by -41.2 per cent and -36.9 per cent respectively.

The decrease was not as dramatic in Victoria and South Australia, where the index declined by -1.2 percent and -9.3 percent respectively.

“The Time-to-Buy Dwelling Index suggests a divergence in property purchasing decisions, with Australians evaluating the market at a more local level. The ‘different speeds in different markets’ theme underpins this, and will continue to do so due to a varying level of available stock,” Dr Mardiasmo writes in the report.

“Policy rate (cash rate) expectations across different countries suggest a similar approach to ours, with aggressive cash rate hike expectations for 2022 to 2023, and a leveling out in 2024 and 2025.

“A key component in 2022 is our demographics. International students and long-term overseas visitors are back in droves, translating to a higher level of demand for housing stock,” Dr Mardiasmo said.

Many more events and disruptions will color the rest of 2022 and early 2023, which the chief economist suggests will create a seemingly never-ending seesaw of demand and supply balance in the Australian property market.