What should investors expect from a 2023 property market recovery?

“The latest October ending data reveals there were just 236,000 listings for sale; our housing supply levels remain constricted,” he said. 

“While this isn’t as low as the January 2022 figures, at just 200,000 listings, the last time we had this little stock on the market was in March 2010.”

Given that Australia’s population is 4 million higher than it was at that time, Mr Paliwal explained, “we are seeing roughly the same amount of listings for sale as 12 years ago, which is concerning.”

“This supply and demand is what will ultimately drive-up house prices,” he said, noting that Sydney and Melbourne’s value revival will occur more gradually than elsewhere,” Mr Paliwal said.

It’s not all doom and gloom, with Mr Paliwal sharing his belief that more and more first home owners in the NSW capital and across the state will benefit from the new stamp duty reform. 

He also expects the system’s success to be the determining factor in other states following suit.

Additionally, he sees interest rates balancing out and potentially being cut by the final quarter of 2023. 

According to him, “the significant interest rate hikes have severely reduced credit take up, which means the RBA will need to balance credit flow, unemployment, spending, and inflation, as we expect those things to worsen over 2023.”

“The RBA will realise their increases have been overshot, and as a result, lowering the cash rate in the final quarter of 2023 may prove to be their only move,” he said. 

Another direct consequence of interest rate rises that may play out in the new year is banks reviewing their lending requirements following lower take-up.

“Six to 12 months ago, borrowers were being assessed on 2–3 per cent interest rates with a 3 per cent buffer. With home loan serviceability now calculated based on an 8–9 per cent interest rate, [it is] scaring off borrowers from applying while others are being rejected for more expensive mortgages,” he professed.

“The banks will need to find a way to bring borrowers back as borrowing capacity declines and shrinks credit take-up,” noting how lenders such as NAB have already started this trend.

While lending looks likely to get easier, there is no reprieve in sight for tenants, with Mr Paliwal believing that the rental crisis will continue to ravage the country throughout next year, culminating in rents across much of the country rising by 10 per cent or more. 

Off the back of diminishing vacancy rates as well as housing undersupply, strong local economies, and relative affordability, he predicts smaller regional centres will continue to experience strong capital growth.

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