Market comment: A LOT CAN HAPPEN IN A YEAR

Thu, 13 Jan 2022

Market comment: A LOT CAN HAPPEN IN A YEARHow could 2022 hope to equal the year we’ve just had?

This is that time of year when we look back at the year that was and start planning for the year ahead.

2021 was a bumper year for Sydney property when it comes to price growth, up an astonishing 25.8 per cent in just twelve months – the highest growth rate since 1989.

The year began well with buyers competing aggressively at auctions. Clearance rates in February and March hit their highest monthly level since 2015, with eight weeks in a row at 80 per cent plus.

This competition, driven by record-low interest rates and an improving economic and health outlook, generated rapid price rises that saw properties routinely outstrip advertised guides and sellers’ reserve prices.

After February and March, monthly auction clearance rates settled back into the 70s as more homes were offered at auction, but prices continued to climb with the city’s median auction price for houses reaching $1,766,000 in May.

Pandemic-inspired restrictions brought a sharp pull back in the number of homes being listed, leading to increased buyer competition and soaring prices. The median price for houses sold at auction topped the $2 million mark by October, and the clearance rate climbed back into the high 70s.

By the year’s end, bidder competition had eased, and more properties were being offered, while evidence of buyer fatigue could be seen. Sydney’s clearance rate fell back to the low 70s in November and the median house price dropped slightly to $1.95 million – but still up nearly 22 per cent year-on-year.

December saw Sydney’s home values increase by a miniscule 0.4 per cent over the month, while apartment values declined 0.2 per cent. This prompted Deloitte Access Economics partner Chris Richardson to say: “The heat is already out of the market. You might see prices increase a little [over 2022], but you won’t see them increase much.”

At the same time, CoreLogic’s figures also show that nationally, Australian housing values were 1.0 per cent higher in December, slowing from a 1.3 per cent rise in November. This continued a trend in the national monthly growth rate that has been evident since the index moved through a cyclical high of a 2.8 per cent growth rate in March 2021.

Throughout the year, 2021 was an especially good year at the top of the Sydney market. Domain’s Lucy Macken worked out that the top 20 property sales in Sydney this past year totalled a record $691.5 million and concluded there were more than 45 sales in the $20 million-plus range.

Brad Pillinger, owner of a Double Bay estate agency, said it had been a truly remarkable year: “This year’s figures are incomparable to any market previously,” he said. 

“There’s been an absolute reset in prices across the top-end market, and the number of highly wealthy people now calling Sydney home is unparalleled.”

The year’s top sales result was in the Sydney CBD. It was the $60 million sale of developer John Boyd’s penthouse in the ANZ Tower to Ellie Malouf, daughter of multimillionaire Ian Malouf. The top price paid for a free-standing house was $45 million paid by financier Andrew Griffin for the historic ‘Rosemont’ mansion in Woollahra.

The trophy home boom wasn’t restricted to just the harbourside suburbs. There were nine sales for about $25 million that set records in suburbs that included Palm Beach, Abbotsford, Bronte and Tamarama.

A really new year

So, that was the year that was. But what lies ahead in this New Year of 2022? EY Oceania’s senior economist Jonathan McMenamin told Domain’s Tawar Razaghi that the end of 2021 brought with it a number of signs that the property market’s momentum would slow in 2022.

“What we’re looking for is a situation where the increasing rate of house prices closely match the things that first-home buyers have in their control, such as income growth, looking at getting it below that 10 per cent annualised growth.

“We are starting to see a tightening in the labour market and, I suppose, the lowest unemployment rates across all the states, and that should put upward pressure on wages growth,” Mr McMenamin said.

Ray White NSW chief auctioneer Alex Pattaro said 2021 had been the best year for auctions in his career, but that now “it’s a more balanced market … sellers are still going to get good prices, competition is still there but buyers won’t be stupid about [what they are willing to spend],” he said.

Buyer’s agent Michelle May told’s Sarah Sharples that Fear of Missing Out (FOMO) will be banished in 2022 because people won’t be pressured to race into making hasty property-buying decisions.

“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 said.

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

Most analysts agree that price rises will continue into this year, although there’s a mixed bag of forecasts for what happens after that in 2023. Let’s look at how Australia’s ‘Big Four’ banks see things developing:

The ANZ Bank sees a six per cent rise in 2022, followed by a four per cent fall in 2023;

The Commonwealth Bank expects a seven per cent rise in 2022, followed by a ten per cent drop in 2023;

The National Australia Bank anticipates a 4.9 per cent rise this year, followed by a ten per cent drop in 2023; and

Westpac sees an eight per cent rise in 2022, followed by a four per cent fall in 2023.

These are figures applicable to Australia as a whole, and Sydney property’s often proven to be a pretty independent statistical entity. However, the national trend is becoming clear as year-end statistics are distilled and Sydney’s now following that trend.

“If you’re expecting housing values to rise by a similar amount [in 2022] as they did this [past] year, I think you’re going to be disappointed,” Tim Lawless, CoreLogic research director, told the Australian Financial Review’s Nila Sweeny.

“I think the growth rate next year will be remarkably low – somewhere between 5 per cent and 7 per cent nationally, maybe even less than that because I think the market will slow down so sharply.”

AMP Capital’s Shane Oliver is firm on his forecast of a smallish five per cent price rise in 2022, to be followed by a weaker time in 2023.

“Australian home price gains are likely to slow, with prices falling later in the year as poor affordability, rising fixed rates, higher interest rate serviceability buffers, reduced home buyer incentives and rising listings impact,” Dr Oliver told Michael Pascoe.

Real Estate Buyer’s Agents Association president Rich Harvey said a correction in prices was unlikely, but there would more opportunities for buyers to get quality homes due to the listings increase.

“Peak price growth is now well behind us and the frenetic intensity that we saw last year should dissipate as the year progress,” he said.

Interest rate hikes to come

The frenzied upwards thrust of property prices has been largely driven by record low interest rates, and it’s generally the case that house prices will go down once interest rates begin to go up. The Reserve Bank has consistently said that it won’t raise the cash rate until inflation reaches its target range of 2 to 3 per cent, and it expects that will happen in 2024.

However, many financial analysts believe the rate hikes will begin in 2023 or possibly even earlier, and banks have already started increasing their fixed rates while they cut variable rates in efforts to attract new customers, especially those investors who can afford sizeable deposits.

Sally Tindall, director of research at financial comparison website RateCity, believes buyers should anticipate rate rises in 2022: "The cash rate is at an emergency setting level, it is only going to go up from this point unless there's a significant bump in the road.

"Banks are focused on gradually nudging up rates, and so borrowers need to be prepared to pay more for money that they take out," she says.

ANZ senior economist Felicity Emmett said higher mortgage rates would be the biggest drag on prices in the next 12 months.

“I think the prospect of higher mortgage rates is probably playing into some people’s thinking around the housing market,” she said.

“That’s going to take some steam out of the housing market, along with the macro prudential tightening from APRA. But I think the interest rate story is the strongest one at the moment.”

Gareth Aird, the Commonwealth Bank’s head of Australian economics, said he expects the cash rate to start rising at the end of 2022, then increase gradually to 1.25 per cent by the September quarter of 2023.

“There are a lot of households carrying a lot of debt,” he told Domain. “The RBA should get a fair bit of mileage out of the hikes.”

Mortgage Choice Blaxland, Penrith and Glenmore Park principal Rob Lees told Domain that taking out a home loan in 2022 would be a lot harder than it was in early 2021: “High levels of borrowing can be an issue there and that is quite different to the beginning of the year,” 

“[The lending landscape] is changing quite rapidly and, for my team, we’ve been caught out a few times and we can’t make assumptions anymore. It’s probably reasonable, so people aren’t overextending themselves,” Mr Lees said.

“Banks are honouring the pre-approvals but once it expires that will have an impact, and it may very well be that their maximum borrowing will be less.”

The Commonwealth Bank recently sent a note to clients that said: “Interest rates become a headwind on property prices if they are rising. That is the place we believe we are moving towards over the next two years.

“We expect a cooling feedback loop to intensify whereby subduing buyer expectations coupled with general fatigue and a growing anticipation of RBA rate hikes sees prices peak in [July, August, September of] 2022.”

Grattan Institute economic policy program director Brendan Coates told the Herald’s Jennifer Duke that prices would fall slightly when rates increase: “That’ll unwind some of the gains they have made over the last 18 to 24 months,” he said.

“It is my experience that when forecasters start forecasting falls in 18 months’ time, pretty quickly they start to occur in six months’ time ... I suspect that is what we will see again today.”

However, SQM Research founder Louis Christopher thinks that concerns about a resurgent Covid could put a hold on interest rate rises: "The Reserve Bank of Australia would hold fire on any planned interest rate rises, and potentially the financial regulator APRA would also hold fire on any additional intervention to restrict credit in the housing market," he said.

First-home buyers lose

First-home buyers are likely to be the immediate casualties of any increases in interest rates. Figures from the Australian Bureau of Statistics show that the number of new loans taken out by first-home buyers has fallen by eleven per cent, although the amount borrowed has risen slightly because house prices are going up.

CoreLogic’s Eliza Owen cautions that a growing disparity between the values of houses and units – almost 38 per cent, is forcing first-home buyers into high-density living: "As affordability constraints start to weigh on demand, we could see a bit more of that demand pivoting into the unit sector in the year ahead," Ms Owen says. 

Domain’s Sue Williams says people have re-evaluated what they want in their homes and a quest for more space has been an important factor in the price growth of houses over apartments. 

“As first-home buyers flooded back into the market in 2020, they were suddenly washed back out again by the pricing tsunami, with investors diving in to take their place”, she writes.

“The record-low interest rates announced in 2020 continued to shape the property market this year.”

Domain’s chief of research and economics Dr. Nicola Powell said investors will continue to be a growing market segment.

“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.”

Stamp duty debate goes on

A report by consulting firm PwC titled ‘Why NSW’s proposed property tax reform is as safe as houses’ found that almost three in four NSW residents would not favour paying an annual land tax instead of stamp duty because they are worried a future government might increase the tax rate.

PwC surveyed more than 800 residents across NSW and found 73 per cent would be reluctant to pay land tax instead of stamp duty because they feared being locked into paying an annual tax that could increase over time. 

PwC Australia tax partner Cherie Mulyono told the Australian Financial Review that fear of the unknown meant people were wary of tax reform, even when that proposed reform was an opt-in scheme: “Given the hesitancy that our survey has uncovered, and given the opt-in nature of the reforms, educating the electorate is key. 

“For the reform to work, the government needs to clearly demonstrate those solutions where choosing the property tax would be to a buyer’s advantage. They must also give a firm commitment on tax rate caps. Ultimately, the government must create a compelling narrative,” she said.

But rate caps aren’t a solution to some of the problems they could create. A cap on annual land value increases means that a long-term owner would have a reduced incentive to sell their property which is contrary to one of the supposed benefits of the reform. 

An owner might well hesitate to purchase a new property that is burdened with a property tax based on the new property’s market value if they can continue to enjoy the benefit of the reduced property tax that applies to their existing long-held property.

It’s ancient history now, but we should remember the recommendations made by the commission of audit conducted when the Coalition won government back in 2011.

The audit, by former NSW treasury secretary Michael Lambert, said stamp duty is the "most inefficient of NSW state taxes”. It recommended a ‘Stamp Duty Replacement Tax’ be phased in to replace all property transfer duties. 

The proposed replacement tax would have been based on land values rather than market values of properties and would be payable annually instead of when properties change hands. The report said that change would deliver an annual welfare gain to the state of $2.3 billion.

That was a decade ago, but to show that governments never stop thinking about ways to potentially increase revenues, two years ago then-treasurer Dominic Perrottet resurrected the idea of replacing stamp duty with an annual land tax. He labelled it the most significant reform to the stamp duty system “in a generation” and said it would “deliver a fairer, more efficient tax structure”.

The proposed reform would impact on every property owner in NSW, and not always in a positive way. However, the political concerns raised by the prospect of an annual land tax are undoubtably the biggest roadblock to such a change and it’s not likely to see the light of day again, at least until after the next state election.


‘Rise in property listings and lower demand to swing Sydney housing market in buyers’ favour in 2022,’ Aidan Devine,, 8 January 2022
‘Storm clouds gathering’ for Sydney and Melbourne property markets,’ Jennifer Duke, Sydney Morning Herald, 4 January 2022
‘Housing values end the year 22.1% higher with the pace of gains continuing to soften as multi-speed conditions emerge,’ Tim Lawless, CoreLogic News, 5 January 2022
‘What will happen to house prices in 2022?,’ Sarah Sharples,, 3 January 2022
‘Will interest rates rise in 2022?,’ Elizabeth Redman and Kate Burke, Domain, 6 January 2022
‘Inevitable’: Where house prices are heading in 2022,’ Kate Burke and Elizabeth Redman, Domain, January 3 2022
‘NSW’s proposed property tax is even worse than stamp duty,’ Matthew Cridland, Financial Review, 5 January 2022
‘Glimmer of hope for first-home buyers in 2022,’ Tawar Razaghi, Domain, 4 January 2022
‘End of the Sydney and Melbourne property boom? Experts tip slow growth in 2022,’ Jennifer Duke, Sydney Morning Herald, 2 January 2022
 ‘Australian house prices: Bank economists predict small rise in house prices before dramatic fall in 2023,’ News Corp Network, 30 December 2021
 ‘Gavel-lanche: The year Sydney’s auction market went crazy,’ Kate Burke, Domain, 21 December 2021
‘Michael Pascoe: For whom the housing market bell tolls,’ Pascoe housing, The New Daily, 18 December 2021
‘NAB targets 1-hour loan approvals in big four mortgage processing war,’ Charlotte Grieve, Sydney Morning Herald, 18 December 2021
‘Nearly three in four NSW residents wary of scrapping stamp duty,’ Michael Read, Australian Financial Review, 30 December 2021
‘Total reset’: Top 20 Sydney house sales for 2021 tally almost $700m,’ Lucy Macken, Domain, 19 December 2021
‘What the housing market could look like in 2022,’ Nila Sweeny, Australian Financial Review, 31 December 2021
‘Why this year’s Sydney property market is one for the record books,’ Sue Williams, Domain, 29 December 2021
‘Why won’t governments fix housing affordability?,’ By Kate Burke, Domain, 23 December 2021
‘Will the housing boom be over in 2022? We ask the experts,’ The Business, Rhiana Whitson, ABC News online, 31 December 2021