What's happening so far in the 2022 housing market?

The property market is back in full swing after a brief slowdown in activity over the Christmas break.

This first quarter of 2022 will be a tell-tale sign of what’s to come this year.

In January, property listings surged. According to CoreLogic, 573 properties were taken to auction in the week ending February 6 in Melbourne – the second highest of all capital cities. This is a 45% rise in stock from the week prior (week ending January 30).

Prices are still hot, though they are stabilising. Median property values in Melbourne edged up by 0.2% in January to $798,881. Over the past year, this was a growth of 14.9%.

Sellers are listing their homes in droves as they want to secure maximum profit while the market is still running hot. For buyers, this is great news as it means plenty of stock to choose from, reduced sense of FOMO and more time to negotiate any purchases.

CoreLogic research director Tim Lawless said while there’s still definitely competition among buyers, this has come down, resulting in a “rebalancing” of power between buyers and sellers. 

Buyer sentiment has gone from FOMO to rational, thanks to increased listings, the prospect of higher interest rates, uncertainty towards Omicron, and the risk of future variants.

Will interest rates increase in 2022? 

A rate hike this year is almost certain now, and the question on everyone’s minds has shifted from ‘if’ to ‘when’.

Economists are now predicting that the RBA will lift the cash rate in as early as August – much earlier than the initially slated 2024 date.

Specifically, Westpac expects the cash rate to be increased by 15 basis points in August and 25 basis points in October. NAB anticipates a hike of 15 basis points in November, followed by 75 basis points in February 2023.

Even though the RBA hasn’t confirmed any movements yet, the banks haven’t wasted any time adjusting rates, with fixed rates already drifting higher.

The average two-year rate is 2.56% p.a., while the average 5-year fixed is 3.36% p.a., according to Mozo. Gone are the days when sub-2% fixed rates were common and expected.

And it’s not just fixed rates. While it’s clear that low fixed rates are diminishing, AMP Capital chief economist Shane Oliver believes variable rates are next to move up, with increases expected “later this year”.

Fluctuations in both fixed and variable rates will impact new buyers and borrowers the most. Buying later not only means higher prices but also higher interest payments.

Yet as rates go up, buyers aren’t shying away from their home ownership dreams, nor are they borrowing less. In Victoria, the volume of new home loans soared by 19% last year and the average loan size of an owner-occupier is $630,412, climbing by 21.7% in 2021, according to ABS data.

What's happening in the Australian economy? 

Two major economic measures have been the driving forces behind rate hike speculation: the inflation rate and the unemployment rate.

While headline inflation for 2021 was 3.5%, underlying inflation (which the RBA is focusing on amid COVID) was 2.6%. It’s the first time underlying inflation has been within the RBA’s target 2-3% band in six years and the highest since 2014, according to the ABS.

While it isn’t high enough to force the RBA to lift rates immediately, it does mean a rate hike is looming. Interestingly, only less than three months ago, RBA governor Philip Lowe dismissed the idea of an early rate hike as “extremely unlikely”.

Unemployment rate dropped to 4.2% in December 2021 – the lowest since the global financial crisis 13 years ago. Nearly 65,000 jobs were added to the economy in December. What’s really fascinating is that the employment number has reached an all-time high of 13.24 million. Who would’ve thought we’d hit such a milestone in the middle of a pandemic?

It’s clear now that Omicron has not derailed Australia’s economic recovery from the Delta lockdowns, nor has it substantially impacted our property market.

It was reassuring to hear Victoria chief health officer Brett Sutton confirm that Victoria had “likely” reached its Omicron peak in mid-January. Amid high vaccination rates, testing numbers and case numbers appear to have stabilised, if not dropped.

It has been two years since COVID-19 hit Australia. Since then, we have adopted measures to help us move on with our lives amid the pandemic, including vaccinations, face masks, QR codes and more. Much is still uncertain but there is no doubt that we are learning to live with COVID-19 while still protecting the vulnerable. In fact, it’s a testament to how adaptable Aussies can really be when facing challenging times.

Could we see a shift back to the office in 2022?

Government and business leaders believe February is the right time to return to the workplace, as we pass the Omicron peak. Leading the big drive to return to CBD offices is the City of Melbourne, along with business & property advocate groups.

Both the Victorian government and City of Melbourne have pumped hundreds of millions of dollars into revitalising the CBD.

Most companies have adjusted to remote working and many workers may never return to the office five days a week. But it’s also widely recognised by many employers that working from home just doesn’t replicate the experience provided in an office setting.

In particular, those working in financial services and money markets would find remote working a challenge. Staying up-to-date with market movements requires collaboration, social interactions and office discussions, some spontaneous. It is hard to recreate this when everyone is at home. There’s also uncertainty in some vocations as to how productivity and innovation is faring with a remote workforce.

What seachangers can expect in 2022?

What does all this mean for seachangers? Prices could start to slow, though coastal markets haven’t skipped a beat during the pandemic.

Ten of the 67 suburbs in Victoria which surpassed $1 million median price in 2021 were on the Mornington Peninsula, with another 7 in Geelong and Warrnambool.

Leading the growth was St Andrews Beach on the Mornington Peninsula, where median prices soared by 58.4% in 2921 - from $928,601 to $1,470,912.

It was followed by Rye, also in the same area, which saw prices balloon by 42.6% to $1,194,989.

Mornington Peninsula enjoyed 10 consecutive quarters of house price growth.

The latest auction data for the Peninsula shows that 85.7% of 33 auctions sold successfully in the week ending February 6. It’s the highest clearance rate among all of Melbourne’s sub-regions, an indicator of the area’s popularity even as we head into the last month of summer.

Seaside markets are no doubt still in high demand, though we will watch and see to see where 2022 takes us.

The question we raise, “Will CEOs and business leaders calling staff back into the office be a catalyst for a shift in the coastal market sentiment?