Where in Australia are property values likely to fall the most in 2022?

There’s a lot of speculation that property prices will cool down this year. We asked four experts which markets are likely to be affected. Here’s what they had to say.

Chris Gray

There’s been a lot of talk in the media about property prices falling in 2022, but I’m not that confident about the banks and the economists that are predicting that fall, because let’s be fair, they weren’t that accurate when they predicted the 20%-plus falls in 2020 due to COVID-19, which turned out to be a temporary 5%-10%. Nor were they great at predicting the 5%-10% bounce back, when in fact a number of places saw 20%-25%.

Saying that, I’m not suggesting I’m any better at predicting the future and I’m certainly not a clever and well-educated economist that crunches the numbers. I base my predictions on what’s happened in my 30 years of investing, my intimate knowledge of specific property markets and typically I look at a 10- to 20-year long-term horizon. Predicting a 12-month result can be very volatile and can easily change due to COVID-19, war or the recent floods.

I’ve always invested in median-priced, A-grade property in blue-chip suburbs, five to 15 kilometres from our capital cities as it’s in short supply and there’s a high demand from cashed-up high-income professionals. I believe that market will still continue to rise in 2022. I’m still seeing pent-up demand. Sure, we probably won’t see 20%-25% growth but I think there’s a chance a whole bunch of properties might see 5%, 10% or even 15% in the next 12 months.

So what might fall? Well, I think there’s a high chance that some of those rural and regional areas that have had massive and unsustainable growth due to the panic buying from those trying to escape our cities due to COVID-19 are likely to see some falls.

I think many people may find that living in a regional town is quite different from city life and may be a bit too much of an extreme. With often only a few restaurants and taxis in town, they might miss that convenience of an Uber around the corner or having more than 100 restaurants that will deliver under the hour. Local roads then can’t keep up with the increased volume and how are the workers from the shops and restaurants going to afford to live there with the increase in prices and move away from long-term rentals to tourist Airbnb?

Then there’s the office as many bosses now want workers to come back to work at least two to three days a week – is it really worth that long commute and having to pay for a hotel in the city for a few nights each week away from your family?

The harder something has risen, the greater the chance that there could be a correction.

If you’re an opportunist, looking to grab a bargain, then sure look at those suburbs that have risen 40%-50% but beware – if you invest in something that’s just had a massive drop, by nature it could drop much further and/or is likely to be very volatile in the future and so are you sure that’s a place that you want to invest into?

If you’ve already purchased and are worried about getting into negative equity, you only realise that loss if you sell. If you continue your mortgage repayments, the chances are, by the time you want to refinance or sell, the property may have well risen beyond what you paid for it anyway. The key is to think long term and do whatever you can do to hold on.

So whilst the headlines could be a great opportunity or a big scare, try not to panic into buying or selling.

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Chris Gray is CEO of Your Empire, a buyers’ agency that builds property portfolios for time-poor people. Chris is a qualified accountant, buyers’ agent and mortgage broker.

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Peter Koulizos

In my opinion, there are two sectors of the market that will suffer falls in value in 2022 – the lifestyle market and CBD office property.

Firstly, the holiday house market. Many people have not been able to travel overseas for the last two years and they have saved lots of money. This money has been burning a hole in their pocket and they have been desperate for a holiday. The next best thing to holidaying overseas is holidaying at home so many of them bought holiday houses. Many of them paid more than they should have for their holiday home.

When the travel and tourist industry gets back to normal, many people will be spending their money on overseas travel. With fewer people interested in buying holiday homes, this will put downward pressure on prices. As many people paid too much for their holiday houses during the past 18 months, this drop in value will hurt even more.

Secondly, the CBD office market. Working From Home (WFH) became the norm during COVID-19 and for many workplaces, WFH is here to stay. Not everyone will be working from home every day but many people will be working from home for part of the week.

This means that there will be fewer office workers going to work and as the highest concentration of office jobs are in the CBD, this will result in reduced demand for office space. As leases in office buildings come up for renewal, we will find that many businesses will be leasing less space. If landlords can’t/won’t reconfigure their traditional office space to meet the market demand, they will find that their vacancy periods will increase, rents will decrease, which results in the value of their office property falling.

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Peter Koulizos is the Program Director of the Master of Property at The University of Adelaide and the author of several books.

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Tim Lawless

The notion that housing markets could level out through 2022 and potentially move into a downturn is becoming a more widely held belief, and I would tend to agree that housing risks have become more skewed to the downside amidst a rising cost of debt, stretched affordability, a more cautious lending sector and weaker sentiment.

However, the market remains diverse, and some sectors of the market are likely to be riskier than others.

We know from previous growth cycles that the upper quartile (or highest value quarter of the market) tends to show more volatility through the cycles; stronger gains through the upswing but larger drops through the downturn.  This trend has certainly stood out through the pandemic, with upper quartile house values rising by 23% over the past year compared with an 18% rise across housing within the lower quartile of values. If previous trends are anything to go by, the upper quartile of the market is likely to record a larger decline through the down phase as values rebalance with underlying fundamentals.

This trend is already becoming evident in Sydney and Melbourne, where the slowdown in value growth is more advanced than in other cities. The three months ending February 2022 saw Sydney’s upper quartile house value record a rise of 0.7% while the lower quartile of the market was up 2.6%. Similarly, in Melbourne, the quarterly change in upper quartile house values was down 0.8% while the lower quartile reported a 2.1% rise.

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Tim Lawless is Research Director of CoreLogic Asia Pacific.

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Michael Yardney

2021 was a relatively unusual year for property – we experienced a once-in-a-generation property boom where values grew strongly almost everywhere.

Increasing consumer confidence as we worked our way through COVID-19 and low interest rates at a time of pent-up demand for housing created a boom where many buyers were driven by FOMO (fear of missing out) and purchased almost any property, just to get in the market.

Unfortunately many took shortcuts and sidestepped proper due diligence to avoid missing out on what they perceived as an opportunity

This year will be very different and while we will not see the same level of overall price growth in 2022, there will still be a substantial uplift in property values over the year however our housing markets will be fragmented.

Of course, this is a more ‘normal’ market, and some locations will still see strong property price growth, some will experience moderate price growth, some locations will languish, and a few locations will see property values falling.

We have already seen the first couple of months of this year delivering no price growth in our two big capital cities – Sydney and Melbourne.

However, with more properties coming onto the market this year and less urgency from buyers, I believe A-grade homes in great locations of our capital cities will still increase in value, while B-grade properties – those in poor locations or with some issues – will not increase in value as much and C-grade properties will languish on the market as buyers become more selective.

Since the beginning of the pandemic property values have increased by more than 20% in most locations and up to 30% in some areas, but over the same time wages growth was minimal, meaning properties are going to be more unaffordable for many Australians who just can’t borrow anymore, especially as banks are raising their fixed-term interest rates.

And with demand being brought forward by many first home buyers who took advantage of the various grants, I can see property values falling in some of the new outer suburbs where affordability constraints will bite this year.

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Michael Yardney is a director of Metropole Property Strategists and writes the Property Update blog.

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