What's impacting your loan & property value in 2022
Here’s what to expect from the banks and our residential property market which will impact your loan and property value in 2022. Experts are predicting only gradual property price rises and more interest rate hikes. This is our last snack-sized update for the year before we leave you to enjoy a much-earned break.
Property prices to cool
Property prices nationwide have risen 22.22 percent for the year so far, according to Corelogic.
In November, they rose by only 0.9 percent though in Sydney, the weakest since January 2021.
CoreLogic's Research Director Tim Lawless says, “Fixed mortgage rates are rising, higher listings are taking some urgency away from buyers, and affordability has become a more substantial barrier to entry”. It is assumed that these factors will contribute to a softening of the property market in 2022.
Clearance rates have fallen too. Sydney’s clearance rate dropped from 80 percent as it was this time last year, to 71 percent, according to data from Domain. The clearance rates do drop off at this time of the year typically though but this year as you can see, is even lower.
Regional property prices on the other hand, at more affordable prices, continue to experience strong growth trends, especially those within commuting distances of the major cities. NSW’s Southern Highlands and Shoalhaven, recorded the highest quarterly growth rate recently, up 9.7 percent.
Will variable rates follow rising fixed rates?
While fixed rates have increased significantly of late, contributing to this buyer slow down, variable home loan rates have moved in the opposite direction, now cheaper than most fixed rates. Gone now are those sub 2 percent, 2 and 3 year fixed interest rates.
Firmer inflation expectations, both here in Australia and abroad, is one factor pushing up bank funding costs and in turn, these fixed mortgage rates. The other factor is the Reserve Bank of Australia’s (RBA) withdrawal of their facility to provide low-cost 0.1 percent, three-year loans to our banks – this ended in June. As a result, the banks now must borrow from the open market or each other and these rates that they borrow at are more expensive – so this gets passed onto the borrower. There are even economists suggesting that the RBA will cease their other initiative, the bond-buying program, when it meets again in February 2022 so we could see even higher fixed rates.
On the variable rate front though, the RBA has suggested that they will “not increase the cash rate until actual inflation is sustainably within the 2 to 3 percent target range”. Most economists believe that we will see inflationary data figures consistently between this range in 2023, or 2024. So at a cash rate of 0.1 percent, our variable rates are set to stay low for a while, or until the RBA makes any changes.
2022 repayment expectations
As banks try to lure customers, continuing with their cashback offers, different product and credit policy niches, they are now competing strongly with these lower variable home loan rates. We’ve never seen variable rates this low before. For the banks, it’s a cheaper source of funding and as a result, is more profitable for them. So it is our expectation that in 2022, we will see many of our clients allocate more of their borrowings towards variable repayment types, as opposed to fixed rates and we expect later in 2023 that these variable rates will rise. We do expect fixed rates to continue to edge higher in the new year, as they have in 2021. Even though our mortgage repayments will be increasing, it won't be by much - not yet anyway. It's why we also are still thinking the property market in 2022 will only cool, with gradual property price rises.
Best wishes
All of us here at Black & White Finance thank you for your support this year. We wish you and your families all the very best this festive season.
We will be taking a break and with a bigger team now, look forward to helping you again when we return in the new year.
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