The 2023 housing market: what to expect

WITH DANIEL SENIA

If you are thinking of buying or building a home in the next 12 months, it pays to be prepared for what lies ahead.

Interest rates will rise

Because interest rates have been at record lows for years, there is plenty of speculation that interest rates will continue to rise – at least in the early part of 2023. This means that homeowners, or anyone wanting to buy or build a home, will be affected. When calculating mortgage repayments, consider how you’d cope with payments if interest rates rose by 1 per cent or 2 per cent. It’s important that your budget has some wiggle room.

 

Demand for new housing will slow

Off the back of continued interest rate rises through 2022 and likely into early 2023 the demand for new homes will soften at least for the first part of the year.

However with increased migration forecast for 2023 and an ongoing undersupply of housing stock across the state we will likely see the market bounce back quite quickly once consumer confidence is restored and we see a flattening of interest rates, giving buyer more certainty around their budgets and repayments.

Economists debate whether this will happen mid or late 2023, but we should expect a strong return of home buyers by the end of the year.

 

Cost increases will stabilise

The slowing of demand on construction, and the end of the HomeBuilder grant jobs currently being completed, means that we will see a freeing up of materials and labour to construct new homes.

Rather than the 20-30 per cent year-on-year cost increases we have endured the past two years, we will start to see costs fall back in line with traditional inflation rates of around 2-3 per cent per annum.

 

Cost of living pressures will ease, but not entirely

The Reserve Bank’s fiscal policy of slowing down the inflation rate will come to fruition in early-mid 2023. This will mean that the rising costs of goods will slow to a normal rate of inflation.

However the ongoing war in the Ukraine and China’s lockdown policy affecting exportation of goods will still mean fuel prices are likely to remain high and some of the goods we import will still be in short supply.

In regards to new homes, the rising cost of fuel and the reliance of transport and logistics will still have a direct cost impact on materials heading out to site.

 

Rental pressure

With more people waiting to purchase a new property due to interest rate uncertainty there will continue to be pressure on rental accommodation. We are already seeing a shortage of rental stock in the market, so this increased demand for rentals will drive rental prices even higher.

 

More investors returning to the market

As rental pressure grows, and the cost of renting a home increase, this also means higher rental returns for landlords. Combined with the ability to purchase and build a new home at reasonable price, means investors will return to the market to capitalise.

 

Daniel Senia is the managing director of First-Place Building Co. with more than 18 years’ experience in the new home buying industry working with some of Australia’s largest home builders and developers.

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