Australian suburb.

Property Market Forecast – Looking Ahead to 2022

The soaring prices of dwellings in Australia’s housing market has been hard to miss.

Markets, in general, are displaying remarkable strengths, all of which points to a legitimate boom.

According to the Westpac Housing Pulse (May 2021 edition), the growth in Australian markets across the board points to a full-fledged boom. The price gains stretch beyond housing. Westpac explains that an upturn is visible across 90 sub-markets. None of the various submarkets are showing declines, and most increases are of the double-digit variety.

Matthew Hassan, Westpac senior economist, explains markets across the board have a turnover of 30 per cent above the national pre-COVID peak. Prices are nearing record levels as they are 8.5 per cent above the peak before the pandemic.


Signs of the Times

Some of the statistics surrounding the current housing prices sound like the stuff of fiction.

However, the facts are incredibly real:

  • Since the year 2000, Australian home prices have increased by 150 per cent
  • Older generations of Australian’s purchased their homes at approximately three times the average yearly income. In contrast, today’s home buyers purchase homes at seven times the annual average wage.
  • The rate of homeownership across Australia fell 15 per cent in the past 20 years
  • Housing costs are rising at the fastest rate in 17 years
  • The number of Australians living in rental properties has increased by 20 per cent since the mid-1990s.
  • The value of residential dwellings in Australia rose from $449.9b to $8,293.2b in a single quarter.


Will the Market Cool and Prices Drop Soon?

When looking ahead to 2022, numerous financial gurus, who took part in a Reuters poll, point to a slight cooling off in the next year. The price of homes will continue to increase this year, showing an increase of 17 per cent. During the minor cool down predicted for 2022, the rate of housing price increase will drop to 6.2 per cent.


Forecast for Perth

Even though Perth’s exceptional growth in dwelling prices is beginning to taper off to a degree, the Western Australia capital is still in the midst of a period of solid gains.

Sales of residences are at the highest level since 2006. Roughly 49,500 houses and units changed hands during the year. In addition to robust home sales, Peth’s rental markets are strong. Individual home rentals are up 16.6 per cent, and the rental of units increased to 14.6 per cent.

Investors are eyeing Perth carefully as the city and surrounding area become more and more appealing. Given the present conditions, experts believe the Perth housing market will remain strong, but they look for the exceptional growth to slow gradually.

The factors that add to Perth’s attractiveness to investors include

  • Rising values of homes
  • High rental yields
  • Strong rental gains
  • Improving demographics
  • Stronger economy


Housing Price Changes Across Australia

Australia’s Capital Cities Median Price for Single-Family Home

While the effects of the housing price increase stretch across Australia, the capital cities recorded the most significant gains. According to the Australian Board of Statistics, the percentage of change for all capitals is between 5.9 per cent and 10.9 per cent.

The following are median residential prices from capital cities:

  • Adelaide’s median price: $540,000 and percentage of change from 3/20-3/21 of 7.5
  • Brisbane’s median price: $678,000 and percentage of change from 3/20-3/21 of 7.5
  • Canberra’s median price: $1,015,833 and percentage of change from 3/20-3/21 of 10.9
  • Darwin’s median price: $554,295 and percentage of change from 3/20-3/21 of 6.4
  • Hobart’s median price: $646,301 and percentage of change from 3/20-3/21 of 10.2
  • Melbourne’s median price: $1,023,000 and a percentage of change from 3/20-3/21 of 5.9
  • Perth’s median price: $596,000 and a percentage of change from 3/20-3/21 of 9.0
  • Sydney’s median price: $1,410,000 and a percentage of change from 3/20-3/21 of 7.5

Apartment buildings.

Problems are Associated with the growth of Housing Prices

At a passing glance, the unprecedented rise in Australian dwelling prices looks relatively benign. However, a forecast of continued growth shines a light on the negative impacts of the economic boom.

Younger Australians and those with fixed or modest incomes are unable to purchase a home – Anyone looking to break into the housing market can expect a struggle fraught with challenges and potential disappointment. Although interest rates are at an all-time low, the monumental rise in the price of dwellings across Australia places them squarely out of reach for many.

The issue has a cruel duality in that the price of renting a home or a unit is also rising. A gulf between those who are financially capable of affording suitable housing and those who are not is continually widening in this economic climate.

Housing costs are poised to eclipse wages by ten times – Even though the employment situation is improving since the early days of the pandemic, Aussie workers may not see any meaningful impact on their housing situation. When prices of homes rise ten times as much as worker’s wages, the idea of owning a home becomes more of a dream than a goal.

Whilst having employment is crucial if you want to purchase a home, wages need to keep pace with the costs of owning a home. At this time in Australia, housing costs are dwarfing salaries. Australians with the best intentions of saving for a down payment face an uphill struggle.

According to Gareth Aird, head of Australian economics for the Commonwealth Bank, the amount of a down payment large enough to avoid lender’s mortgage insurance is beyond the reach of many Aussies. House hunters who believe they have a reasonable down payment are finding that they need thousands of dollars more to avoid mortgage insurance. In many cases, that translates into saving an extra $1,200-$1,500 a week to make up the difference. There are not many potential buyers who can comfortably cut that amount of money from their weekly budget.

Legitimate concerns regarding homelessness are growing – According to Jenny Smith, chair of Homelessness Australia, Australians asking for assistance dealing with homelessness is up by over 15 per cent.

Ms Smith expressed concerns over the fact that during the past decade, the federal government reduced spending on homelessness and social housing by nearly one billion dollars. The spending cuts along with rising costs of suitable housing place a significant portion of the population at risk of homelessness.

While increasing the number of dwellings available through social housing could create a safety net for the at-risk population, it appears unlikely. The expense of purchasing property for homes that could become social housing is too high.

Complicating the situation is the fact that investors with large financial reserves are snapping up property to develop. However, these dwellings will net investors considerable profits, not assist in the battle against homelessness.


The Covid-19 Pandemic & the Growth of Australian Home Prices

Throughout 2020, the Corona Virus cast a pervasive and deadly shadow across the globe. There appears to be no long-term solution as variants arise poised to cut new swaths of destruction.

Economists believe that Covid-19 is responsible for the most widespread worldwide economic contractions in history. Fears of the virus and the economic carnage it could cause led to some pre-emptive adjustments in Australia.

Being able to maintain comprehensive quarantine, strong enforcing of masks, and social distancing all made it possible for Australians to return to something close to normalcy.

However, the virus did have a lasting effect on Australian markets.

COVID-19 Impacts

  • The Corona Virus initially disrupted the expected cycle of housing prices
  • COVID-19 led to government responses to reassure Australians who were uncertain about how COVID would impact the property market
  • The Australian government cut lending rates to historically low levels ushering in buyers eager to take advantage of the new rates.
  • The closing of borders strongly impacted migration among Australians as well as foreigners
  • The Reserve Bank of Australia gave support to the domestic economy, and in turn, the property markets reacted to the economic stimulus.

Australian suburb


Future Coronavirus Impacts on Housing Prices

The jury is still out regarding how the new COVID variants and a renewed series of lockdowns will impact the Australian economy. Leading analysts agree that mutated strains of the Coronavirus hold the potential to cause a slowdown in the rising price of housing. However, the majority of those experts believe that the chances of this happening are low.

Even though there are no signs of cooling appearing on the horizon, Australia’s booming housing prices will eventually level off. Prices will likely stay strong going into 2022. However, economists expect that growth will slow to around five per cent in 2022. The change will allow for a gentle drop rather than a dangerous free-fall.

Gavin Harrigan

View Profile
With over 18 years in the finance industry, Gavin's wealth of knowledge relating to home loans is matched by few in Australia. This knowledge is reflected in his dozens of awards, including being inducted into the Plan Australia Hall of Fame. His qualifications include a Bachelor of Commerce from Curtin University for Applied Finance and Commercial Law and a Diploma of Finance and Mortgage Broking Management from AAMC Training Group.

Enquire With Us Today

    Enquire form

    Talk to your local broker

    Let our experts do the hard work for you