Strap in for a "bleak" year for property – experts

A perfect storm of rate rises and tumbling property value will impact the market well into 2023

Strap in for a "bleak" year for property – experts

The outlook for the property market will be bleak well into next year thanks to a perfect storm of interest rate hikes, tumbling property values and stifled consumer sentiment, according to a report by credit rating agency Moody’s.

However, the agency said the bad news would be mitigated somewhat by low rental vacancy rates, which would prop up investor demand when interest rates calm, according to a report by The Australian. Still, Moody’s warned that the property market was in for a rough 12 to 18 months.

The rating agency said that the winding up of COVID-19 stimulus along with the RBA’s continued rate hikes would continue to stifle property prices. Moody’s also predicts that inflation will remain above the central bank’s target band into fiscal 2023 and that rates will continue to climb.

Still, Moody’s senior vice president Mathew Moore told The Australian that residential fundamentals will remain solid.

“The return of foreign migration, population growth recovery, limited housing and land supply, and strong unemployment in Australia will likely limit the severity and duration of the housing market downturn,” Moore said. “In addition, historically low vacancy rates will support investor demand when interest rates stabilise.”

However, Moore warned that the downturn would also impact the credit quality of both financial institutions and regional and local governments.

Moody’s said building material producers and developers were most at risk from the downturn. However, the rating agency said these companies’ strong balance sheets and asset diversity would help mitigate adverse impacts to their credit quality, The Australian reported.

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Banks’ strong capitalisation and provisioning should help them weather the storm of a weakening housing market, Moody’s said.

Westpac’s Housing Pulse Survey said the current climate in the property market was “bleak.” While prices are falling, any improvement in affordability is being wiped out by the skyward march of interest rates, the bank said.

Price corrections have taken a firm hold in New South Wales and Victoria, while Queensland, Tasmania and the ACT are also seeing significant price declines.

“Housing is now hostage to the policy and economic cycle,” Westpac senior economist Matthew Hassan told The Australian.