Buying a house in 2022?

Two themes came through in the news towards the end of last year: that the property market had peaked; and that the Reserve Bank would be forced to raise interest rates.

Both may be true – but nowhere near as much as the doom-mongers fear.

With growth rates of around 25 per cent last year, it’s hard to imagine prices rising to the same extent – especially if interest rates do rise.

This week Westpac said that interest rates would increase from August 2022 – and that there would be a second rise in October.

However, the Reserve Bank has not deviated from its advice that rates will be on-hold until 2023/24.  And, this month, consumer confidence dropped 7.6 per cent to 97.9 the weakest January result since 1992, when the Australian economy was experiencing sharply rising unemployment.

Certainly, with unemployment now down to 4.2 per cent, much of the economy is doing well.  However, the Reserve Bank has indicated that it will not be increasing rates until wages growth is at sustainably higher levels.

We have no clarity on wage growth yet – and with WA deciding to keep borders closed beyond 5 February, it is too soon to conclude Australia’s economy is really heating up.

Origin Finance noted that the market peaked in December 2021 – but that does not mean it is in decline; rather we see it plateauing in the early parts of 2022.  With a middling economy and only modest wage growth, home affordability limits mean that few Australians will be able to drive property prices up this year.

But, if you are awaiting a price drop so you can find a bargain you may be disappointed.  There’s little sign that the banking regulator (APRA) will make it tougher to get a mortgage.  And as rates climb towards pre-Covid levels, there’s probably less need for intervention too.

The international borders will open and wages will eventually rise – possibly counteracting any cooling effect of a rate rise late 2022.

All being well 2022 will be a calmer year after 2020 and 2021 – but who would have predicted the last couple of years?