fbpx
  • Home
  • /
  • Blog
  • /
  • How Much Property Prices Are Falling in 2022?

How Much Property Prices Are Falling in 2022?

The Reserve Bank of Australia (RBA) has raised the cash rate by another 0.5 percent. This means the rate will be 1.35 percent, up from 0.85 percent last month. Are property prices falling more than we expected before? Is the property market going to crash?

Impacts Of Rising Interest Rates

Understanding the impacts of interest rate rises is extremely important, as Australia’s household debt is among the highest in the world, and the residential property sector this year will have to absorb the sharpest interest rate increases since 1989.

property prices are falling
Source: Trending Economics Sep 2021

Rising interest rates increase mortgage repayments and could create mortgage stress for many home owners and property investors.

Additionally, the cost to borrow is going to increase, which simply means that people can’t borrow as much. Therefore, property prices are falling as demand reduces.

Now the question is how much property prices are going to fall and how fast they are going to fall. The answer to these questions would be largely dependent on the speed and size of interest rate rises over the next 12 months and also the demand and supply balance in the property market.

So, let’s have a look at the demand and supply principle to find out how rising interest rates will reduce property prices.

Demand & Supply Principal

The law of supply and demand is a basic economic principle that explains the relationship between supply and demand for a good or service, and how that interaction affects the price of that good or service.

When there is high demand for a good or service, its price rises because people will bid up the prices when there is relative scarcity.

On the other hand, if there is a large supply of a good or service but not enough demand for it, the price falls. The reason for this is that there will be unsold items when there is an oversupply.

In the current property market, it is evident that demand is reducing while supply is growing. The market has turned into a buyer’s market, and the absorption rate has declined significantly in most states.

But what is the absorption rate, and why do we need it?

Absorption Rate – Indicator of Property Prices

Absorption rate is the rate at which available properties are sold in a given timeframe, and it is a powerful indicator for predicting future prices.

Low absorption rates (which occur in a cold market) cause property inventories to rise, putting downward price pressure on properties that don’t sell quickly.

Conversely, high absorption rates are clear indicators of a growing (hot) market.

To predict the future of property market prices, analyze the absorption rate and consider the following factors that affect it:

1) Days on Market (DOM): DOM is the length of time a real estate listing is on the market for sale. The longer a property remains unsold, the more motivated most sellers are to accept a price discount to sell it, indicating a softening market. Check the trend in DOM.

Investing tip: If you are looking for a bargain, focus on properties that have been on the market for some time because the seller is likely more motivated, and you can negotiate more effectively.

2) Price Discounting: This metric shows how much of a discount sellers have to offer to sell their property. Higher discounts indicate a softening market. You can often find this information online for free.

3) Auction Clearance Rate: This is a good indicator of the balance between buyers and sellers in the market. (Free information online)

An auction clearance rate of more than 70% indicates a growing (hot) market. Less than 70% suggests a softening market, and below 60% indicates weak demand, a slowing property market, and an oversupply of available properties.

The Auction Clearance Rate for 02/07/2022 clearly shows very weak demand and a slowing property market in most states.

Property Prices Falling
Source: Domain

In summary:

High absorption indicates that prices are going up – The more absorbent a market is, the more quickly prices rise.

Low absorption indicates that prices are going down. The less absorbent a market is, the more quickly prices fall.

Now you can analyse your market and determine how quickly prices are likely to change in your area.

One last thing!

As an investor, you need to respond to market conditions and adjust your strategy accordingly if you want to create wealth and protect yourself in risky times.

When the market is strong, investors can increase their debt and risk appetite because there’s a higher chance of property appreciation.

Conversely, when the market softens, investors should reduce their risk appetite and exercise caution.

However, the current market conditions can offer significant opportunities for property investors who have a strategic plan and know how to find, negotiate, and secure profitable deals with confidence.

Therefore, you need to learn and apply high-performance strategies that allow you to reap the benefits of the current conditions before it’s too late.

Now you’re in a much better position to predict, rather than guess, what will happen to property prices. You’re also one step closer to becoming a sophisticated property investor.

Good luck!

Disclaimer: Information provided in this article/website is of a general nature and is not intended to influence readers’ decisions about investing or financial products. Readers should always seek their own professional advice that takes into account their personal circumstances before making any financial decisions.

About the author

Amir Sehat is the chief property adviser and buyer advocate at Property Demand, known for his data-driven approach to researching 15,000 suburbs across Australia to identify booming suburbs as investment destinations.

A fun fact about him is that his deep knowledge and enthusiasm have earned him the nickname 'Property Nerd'.

He provides expert advisory and advocacy services to a wide array of clients, including:

- Property investors seeking to purchase high-growth and high-cashflow properties.
- Home buyers looking to avoid costly mistakes and save time
- Property sellers aiming to achieve the highest selling price


  • {"email":"Email address invalid","url":"Website address invalid","required":"Required field missing"}
    >