Weekly Insights Update -
January 16th 2023

Welcome to the first edition of Insider for 2023, where we share with Manor what's happening in the property market and what's important to you.

Soaring interest rates have halved the pace of home loan growth in just six months as the Reserve Bank’s war on inflation pulled the rug out from under the country’s once-booming housing market. Owner-occupier home loans rose just 0.4 per cent in November in seasonally adjusted terms half the 0.8 per cent monthly gain they posted in June - RBA figures published on Friday showed.

The sluggish increase that lifted the total stock of owner-occupier home loans to $1.44 billion reflected the surge in borrowing costs for buyers between June, when the cash rate was 0.85 per cent, and November, by which time it had jumped to 2.85 per cent. Borrowing behaviour is closely linked to changing rates and the likely increase in the benchmark lending rate to 3.85 per cent - it stands at 3.1 per cent - will put further pressure on home loan demand, ANZ economists say. “Housing finance has significantly further to fall,” economists Felicity Emmett and Adelaide Timbrell said in their last research note for the year about the housing market. “Our forecast for the cash rate to reach 3.85 per cent equates to a reduction in borrowing capacity of more than 30 per cent. This reduced ability to pay will drive prices lower over coming months. Average new mortgage sizes are already 8 per cent off their highs.”

With housing prices expected to double the 8 per cent-plus declines they have already seen to date, the market is headed for its steepest downturn since the early 1980s, offering a reset in prices that creates opportunities for buyers who have the cash - if they are willing to accommodate further price falls.

Friday’s figures also showed a similar slowdown in borrowing by investors, with a 0.2 per cent monthly increase that was also half of the rate of growth it showed in June. The downturn in the global housing market is set to continue in 2023, with most Australian cities expected to fall by double digits in what is shaping up to be the deepest property correction in more than 30 years. Few people are willing to buy or sell in a falling market, and stock is hard to find. But some investors are betting there is money to be made from buying property now, rather than waiting for the nadir in the third quarter of 2023.

Leading economists expect just two more interest rate rises in the Reserve Bank’s most aggressive monetary tightening cycle in 30 years, before it pauses to assess the fixed lending cliff that awaits borrowers.

The Australian Financial Review’s survey of 34 economists puts the first post-pandemic-era rate cut in play by March 2024, according to the median forecaster. Almost a third of respondents predict it could happen this year.

Net overseas migration will return to pre-pandemic levels this financial year after turning negative for the first time since World War II in a shift that will leave the population almost 500,000 people smaller than expected. About 85,000 more people left Australia than arrived in 2020-21, with strict border rules stymying migrant inflows. The result reversed in 2021-22 and is expected to fully recover to 235,000 net arrivals this year. But the toll from pandemic border closures will shrink the population by 473,000 by 2025-26, according to the Albanese government’s Population Statement 2023, slated for release on Friday. The shortfall is a key cause of the current skills and labour shortages, which Treasurer Jim Chalmers said was holding businesses and the economy back.


Economists at three of the nation’s four major banks failed to read the tea leaves when they predicted a year ago that house prices would keep rising in 2022, albeit at a far more pedestrian pace. That the pace of growth would reduce sharply was never really in doubt - after house prices rose a whopping 22 per cent in 2021 off the back of record low mortgage rates - but the idea that house prices would suffer their biggest fall in 2022 since the GFC was not a scenario the nation’s most highly paid economists seriously contemplated.

End-of-year figures released on Tuesday by CoreLogic’s national home value index show that national dwelling values fell 5.3 per cent in 2022 (and 8 per cent from their April high) with the combined capital cities sinking even further, down 6.9 per cent (and 8.6 per cent from their high point).

Leading the slump was Sydney, which recorded a 12.1 per cent correction to leave the city’s median home value at just over SI million, while Melbourne home values retreated 8.1 per cent to end the year at $725,000, and on track to wipe out all their COVID period gains.

None of this deterioration in value - which has left some recent homeowners in negative equity territory and others facing the prospect of selling their homes at a loss - was anticipated by any bank economist.

Australia’s population at the end of the decade will be 1.2 million people smaller than the preCOVID-19 pandemic forecast, due to lower migration and a continued decline in the fertility rate.

By 2032-33 the population will hit just shy of 30 million people, according to extracts from the Albanese government’s Population Statement 2023, two years later than predicted in the 2020 document. Treasurer Jim Chalmers said the updated forecasts were an important tool to understand how demographic shifts influence the economy, with a lower population likely to drag on future growth.

By 2030-31, the population growth shortfall that appeared in the pandemic will have blown out to 1.2 million fewer people than expected in the 2019-20 midyear economic and fiscal outlook just before COVID-19 hit, with fewer births, fewer migrants, and fewer migrants’ children.

It is a sharp reminder why an underpopulated, overtaxed, and over-regulated future Australia can’t be left making things needlessly harder for itself in a difficult world.

Everywhere, ageing populations, fewer workers, and the costs of energy transition are going to make the global economy’s chronic debt habit even tougher to manage in the future.

Overall, capital city prices fell 5.3 per cent last year, the biggest calendar year fall since the 2008 financial crisis, but excluding Melbourne, prices remain well above where they were before the pandemic.

Property prices have now fallen 8.6 per cent since the Reserve Bank of Australia started increasing interest rates last May - about halfway into the 15 to 20 per cent decline many economists are predicting.

Sydney still ahead - The city then experienced a 17.3 per cent COVID-19-trough-to-peak rise - the smallest increase of all the capital cities in the time of record-low borrowing costs. That’s a consequence of having the country’s most severe lockdowns, the largest exodus to other states and regions and a loss of inbound foreign migration.

Even though Sydney suffered a bigger yearly decline than Melbourne, losing 12.1 per cent over the 12 months, its 27.7 per cent surge from the COVID-19 trough in the first quarter of 2020 still gave values a significant buffer that was unlikely to be erased by an expected 3.6 per cent peak in the cash rate in March, Mr Lawless said.

Other CoreLogic numbers showing a 17 per slump in the number of housing transactions in 2022 made clear how much heat came out of the market. There were 514,300 home sales nationally over the 12 months to December, well down on the record 619,500 transactions a year earlier.

This would have wider flow-on effects to the economy in terms of lower real estate agent commissions and conveyancer fees paid as well as weaker sales of items such furniture and homewares - typical purchases made after people acquired homes - Mr Lawless said. But even so, the 2022 number remained almost 8 per cent over the 477,500 average for the past five years.

The number of unsold homes is piling up in a slowing national residential market, with properties on sale for more than six months jumping 14.3 per cent last year - the biggest yearly rise since 2011. The gain in unsold older properties was the biggest since the 33 per cent-plus surge over the year to November 2011 and marked a meaningful increase” in the downturn triggered by eight consecutive increases in the benchmark lending rate since May, consultancy SQM Research said. “The stale stock is really starting to build up now,” SQM managing director Louis Christopher told The Australian Financial Review on Wednesday. “It’s becoming more entrenched, and it signifies that there are many sellers out there who have not been able to meet the market.”

Property prices have now fallen 8.6 per cent since the Reserve Bank of Australia started increasing interest rates last May - about halfway into the 15 to 20 per cent decline many economists are predicting.

With the Reserve Bank still expected to raise the benchmark lending rate to 3.6 per cent by June, further pricing declines are likely.

Weakening conditions will continue to put the squeeze on potential vendors, with owners bringing homes to a buyers’ market only if they must and those with discretion in their timing likely choosing to hold off.

The market was only likely to see listing numbers increase because of distressed or forced sales if the cash rate rose to 4 per cent, Mr Christopher said.

There were 6201 listings of properties selling under distressed conditions as of Wednesday, down from the 6549 recorded in November and well down on the pre-COVID number of about 13,000 homes.  “Distressed listings activity, while up for the year, still remains at relatively benign levels and indeed stabilised over the December quarter,” he said.

Separate figures showing a 31 per cent slump in new listings - those on market for fewer than 30 days - compared with November also indicated a greater reluctance by would-be vendors to list their property, but that data was not clear-cut, Mr Christopher said.

December’s national total of 52,763 new listings was also down 22.4 per cent on the 67,972 total of December 2021, but that was a record December and reflected a fevered housing market that - buoyed by record-low borrowing costs -stayed active over Christmas and New Year, he said.

NSW’s population had been expected to dip into negative territory in 2021-22, which was avoided thanks to border restrictions being removed.

 Homeowners can expect house prices to stop falling mid-year, but only after the Reserve Bank of Australia ends its fastest monetary tightening in 30 years, and they will have to wait longer before property prices start rising.

A survey of 31 economists by AFR Weekend suggests a 15 per cent decline in the value of properties from top to bottom, according to the median forecaster. Only six respondents are more optimistic, predicting a smaller loss.

In Australia, housing valuations continue to fall at a rapid clip. Based on the latest CoreLogic data to January 6, national capital city prices have slumped more than 9 per cent since their May 2022 peak, which is not far off the historical record drawdown of 10.7 per cent between 2017 and 2019 (using the publicly available five capital city index).

On our estimates, Aussie housing should register its worst cumulative loss in 42 years within two to three months. In Sydney, home values have plunged more than 13 per cent while Brisbane is not far behind, chalking up a 9.7 per cent decline. Those modest Melburnians have only slightly outperformed the other capitals with an 8.5 per cent correction thus far.


Jay Bacani
Co-Founder and Director of Manor Real Estate, with over 11 years of real estate experience in the Hills district, Jay says he ‘cannot imagine working anywhere else’. Jay has consistently ranked no.1 in the Hills for most recommended, most sold properties and total sales value since 2016 (as per...