There will be an increasing number of Aussies feeling mortgage stress due to higher interest rates, while first home buyers are still in for a massive headache.

First home buyers are hoping for some relief from skyrocketing property prices around Australia but they will still face huge hurdles getting into the market in 2022, while Mortgage Advisor Melbourne are worried they won’t able to make repayments and even face losing their house.

However, there may be some relief for house hunters in terms of the fierce competition that has defined the 2021 market.

Buying opportunities are looking bright for 2022, with appraisals soaring above last year indicating that a number of homeowners are considering listing their properties for sale in the New Year, according to Domain.

This means the total homes for sale will be brought back into a ‘normal realm’, it added.

Prices are not expected to rise at the same pace as in 2021 with tighter lending reducing buyers’ leverage and wages increases not keeping pace with last year’s price growth, found Domain.

However, it expects that Australians will continue to seek out coastal locations, with beach side popularity continuing to boom. For example, house prices in Somers in Victoria, Byron Bay in NSW and Sunshine Beach in Queensland have increased by 69 per cent, 58 per cent and 48 per cent respectively over the past year.

Buyers will be enticed to hone in on coastal areas that are affordable and poised for future growth in 2022.

Domain chief of research and economics Dr. Nicola Powell said investors will continue to be a growing market segment, unless the lending regulator APRA puts on the brakes.

“It remains a landlords’ market across the most major cities and into regional Australia,” she said. “Investors have had the benefit of rising rents and equity growth, with prices set to continue to rise, albeit at a slower pace than 2021, investors will continue to chase it.”

Regions such as inner Melbourne and Sydney’s city and east, which historically have a high level of overseas migration and student population, will be susceptible to a tightening rental market once international borders fully reopen, the report warned.

How much are prices expected to rise?

Leith van Onselen, chief economist at the MB Fund and MB Super, forecast Australian property price growth to decelerate sharply in 2022, with values nationally to rise by between 7 per cent to 9 per cent.

While Sydney and Melbourne house prices are tracking near historical highs relative to the other capitals, Brisbane’s prices are tracking near historical lows, he added.

This means that Brisbane housing presents exceptional value compared to its larger East Coast cousins, he said.

But Sydney and Melbourne, which have long been the country’s largest hubs for property, are on track to drop by up to 3 and 4 per cent if cash rates rise and regulations tighten, according to Louis Christopher, Managing Director of SQM Research.

He also believes Brisbane is set to defy the trend, with the Queensland capital set to grow by up to 14 per cent next year, he added.

Meanwhile, investment property company Wealthi says that as interest rates start to creep up, there will be a shift in demand for dwellings priced at $700,000-$800,000.

“We’ve seen some crazy prices despite the lockdowns this year,” co-founder Domenic Nesci said. “But we are starting to see some signs that people may not want to buy a property that’s over $1m. People will be looking for more value and affordability.”

What the buyer’s agent is forecasting

Fear of missing out (FOMO) will be banished, as people won’t buy into the hype in 2022, according to buyer’s agent Michelle May, meaning they also won’t race into decision.

“Further increase in supply will thin out the buyer pool. As vendors will look to capitalise on the huge amount of growth over the last 18 months, more listings will mean more choice for buyers and a relatively slower incline in further price rises,” she noted.

“Buyers will be able to be much more discerning, and not jump into the wrong property too quickly without doing their due diligence.”

But with lending rules tightened back in November, Ms May believes it will affect first home buyers the most – taking the market further out of reach for them.

“Those first home buyers that are able to still get into the market will have to turn back to apartments,” she said.

“Otherwise, they risk renting for the longer term as the disparity between apartment and house price increases have been significant.”

With borders opening to international arrivals in December, the return of student and skilled labour immigration will also see more apartments sold and rented in the inner city again, Ms May predicted.

“Vacant apartments targeted to this market have been sitting idle during the pandemic and will now be snapped up again as we see the return of overseas students,” she said.

“As we see the population increase again, we will see more buzz around the apartment market, specifically in university areas.

“Likewise, as we see the rise in skilled labour immigration, the general property choices are also apartments with easy access to transport, schooling and general amenities.

“Affordability certainly plays a factor in this, as well as a typical higher level of acceptance for apartment living from overseas immigrants.”

With her eyes on a number of new Sydney hot spots, Ms May singled out Bexley, Belmore and Arncliffe, suburbs she said have grown exponentially over the last year with more than 30 per cent growth.

“A contributing factor in the shift is that people are being pushed out of the inner west due to higher price points,” she added.

“Funky young couples and families will buy up big in these new hotspot areas. They are great areas for starter homes due to relatively good affordability. Another win-win is that with the upgrade of the metro line, the commute to the city will be around 20 minutes shorter.”

The new Western Sydney Airport is a good news story from a buyers perspective too, added Ms May.

A trend gained momentum in 2021 – virtual buying – will also increase because of expats, immigration and sea and tree changers, added Ms May

“In 2020/21 we saw a sharp decline in auction results because people were really hesitant to buy online or virtually. Now that we have had time to adjust to the concept and this new normal, we will see an increase in virtual buying and online bidding and people being more comfortable to do so,” she said.

What the banks have predicted

It’s the news every young Australian has been waiting for – a drop in house prices but not quite in 2022.

House prices are predicted to fall in Australia in 2023, according to the major banks.

This year, homes rose in value by more than 20 per cent and they’re tipped to rise by 6 per cent for 2022, according to ANZ.

“If our forecasts pan out, housing will be 27 per cent more expensive at the end of 2023 than at the end of 2019,” ANZ economist Adelaide Timbrell warned.

National Australia Bank expects a 4.9 per cent rise as the impact of low interest rates and strong income support during the pandemic begin to fade, NAB group executive of personal banking Rachel Slade.

Westpac has also projected a slow down, with house prices expected to rise by 8 per cent in 2022.

The Commonwealth Bank has forecast a massive 10 per cent drop in Australia’s house prices in 2023 after a startling period of growth that has left new buyers feeling priced out of the market.

While house prices are expected to continue to rise through 2022, CBA’s head of Australian economics Gareth Aird believes interest rates will help settle the market in a few years’ time.

What Aussies are worried about

A Canstar survey of more than 2000 Australians found many were predicting a rise in mortgage stress in 2022, with residents in New South Wales and Western Australia the most concerned about the issue.

While Canstar analysis shows the average variable interest rate for owner occupiers has fallen by 0.25 per cent from a year ago, fixed interest rates are trending upwards overall, especially for longer loan terms.

Its database shows 62 variable rates below 2 per cent, up from 14 in December 2020, while the number of fixed rate loans below 2 per cent is currently 79, down from 119 a year ago.

Those surveyed also predicted slower house price growth, it found.

While national housing values rose for the 14th consecutive month in November 2021 according to CoreLogic, the rate of growth was the slowest seen since January.

Canstar’s group executive of financial services, Steve Mickenbecker said Australians are becoming nervous about property in 2022, with 47 per cent of survey respondents anticipating slower price rises, increasing interest rates, higher levels of mortgage stress and foreclosures.

But he said there are signs of a slowdown.

“In the latest data releases, Australian Bureau of Statistics figures are showing home lending in October decreased for home buyers, leaving only investors accelerating, and the pace of house price growth slowing once again in November,” he noted.

“With 23 per cent of Australians expecting an increase in foreclosures and mortgage stress, even before we have seen the cash rate go up, there is limited confidence in our ability to absorb a sustained increase in Refinance Home Loan Melbourne.”

Despite a cash rate that hasn’t moved for a year, interest rates are on the march in both directions, heading down for variable rates and up for fixed rates.

It’s a sure sign that the market expects the Reserve Bank to move up in the coming 12 months or so, he added.

“The fixed interest rate bargains are disappearing from the market for terms beyond 12 months, with all of the competitive action happening in variable rates that the banks can increase at any time,” he said.

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