What will happen to the apartment market in 2023?
Well the rental market will almost certainly continue to rise throughout the year.
The sales market has too many economic and political factors at play to make any meaningful forecast. Which is another way of saying “I’m not sure”.
That said the last few years have seen a very solid floor on pricing and continued steady demand.
As the cost of borrowing rises, and construction of new apartments remains challenging, there will be an ongoing shortage of rental property for several years. Immigration (including students) is set to rise pushing up rents.
Yesterday’s 8th successive interest rate rise by the RBA to 3.1%, and the predicted peak of 3.6% by May ‘23 is starting to get everyone’s attention. Remeber about a third of all mortgages are fixed so no direct impact on them yet, but they know what is coming.
We now have 2 months until the RBA’s next interest rate adjustment opportunity. No doubt Governor Philip Lowe will be observing the impact of rate rises over this time.
Rate rises have a delayed impact on the market. Additionally the banks have not passed on all of the rises yet. Matt Comyn, CBA CEO said they have only passed on about half of the rises to date and forecasts 70% by March ’23. Many also argue that even at it peak the interest rate is relatively low.
As we move into 2023, there are domestic and global issues that could impact the market. These include:
- The Ukraine war and its impact on energy costs.
- A surge in migration to Australia.
- The Greens drive to freeze rents (which will actually force rents up).
- Construction and labour costs.
Some seemingly negative issues can have a positive impact on the apartment market. We have seen the rise in interest rates move people down the property price ladder. This means buyers start to look at sub $750,000 apartments rather than $1 million plus houses. Rising construction costs limits future supply making relative demand higher.
Forecasting the market is tricky making it important to track main drivers which for 2023 are as follows.
- Interest rates
- Inflation / Cost of living
- Employment / Wages