Few sectors of the economy are as sensitive to interest rates as the property market.
During 2022, eight successive rate rises aimed at offsetting high inflation sent tremors across the market — and are still at the centre of the fall in Australian home prices.
Overall, national housing values fell 3.2 per cent over the year to November.
However, CoreLogic's head of research, Eliza Owen, says the pace of decline has been slowing on a "broad basis since September".
"While this may be seen as a positive by some, there is still risk of the decline re-accelerating in the year ahead," she said.
The fall in national values was largely driven by capital city dwelling values dropping 5.2 per cent, while regional dwelling values rose 3.3 per cent over the same period, CoreLogic figures show.
Which Australian suburbs recorded biggest falls in 2022?
Suburbs in Sydney's City and Inner-South, Northern beaches and Eastern suburbs regions dominated 2022's list for the largest falls in house and unit values across the capital cities, according to CoreLogic.
Narrabeen, Surry Hills and Redfern houses recorded the largest falls in value over the year, down more than 25 per cent, while unit values in Centennial Park and Mona Vale fell by 23.1 per cent and 20.8 per cent, respectively.
Which Australian suburbs recorded biggest growth in 2022?
On the other hand, Adelaide's resilience was consistent over 2022. Adelaide suburbs Davoren Park (up 34.7 per cent) and Seacliff Park (up 41.4 per cent) posted the largest growth for houses and units across Australia.
Overall, the more-affordable segment of the market saw greater resilience to interest rate rises, Ms Owen said, while the more-expensive segment tended to see sharper declines.
What about regional markets?
Regional markets were more resilient to market conditions, bolstered by limited supply, strong demand — compared to pre-pandemic levels — and relative affordability.
However, regional demand has slowed as interest rates have risen.
While a number of regional suburbs posted large annual growth, such as house values in the New South Wales town of Bingara (up 36.2 per cent) and unit values in Laguna Quays, Queensland (up 30.9 per cent), the majority of regional markets have moved past their cyclical peak, and are now recording declining values.
Popular lifestyle markets such as the Southern Highlands, Shoalhaven and the Sunshine Coast have recorded some of the strongest peak-to-trough declines in value.
While Ms Owen says it is unlikely these markets will fall below the levels recorded at the beginning of COVID-19, because dwellings across these regions are still, on average, 38 per cent higher than where they were at the onset of the pandemic.
What will house prices do in 2023?
Well, there's no crystal ball but the answer largely depends on interest rates.
Economist Maree Kilroy expects further rate hikes in early 2023, with the cash rate peaking at 3.6 per cent by March next year.
"Rates will begin to fall again in 2024 and settle at 2.6 per cent by mid-2025," Ms Kilroy, a BIS Oxford Economics senior economist said.
"We expect the nationwide all-dwelling price to fall 11.5 per cent peak-to-trough. The pace of price declines is anticipated to slow from here, with the market bottoming around September quarter 2023."
SQM Research director Louis Christopher also anticipates further rate rises from the Reserve Bank of Australia (RBA) in the early months of 2023.
"We expect more rate rises, starting with their February meeting. However, the expectation is the RBA won't take the cash rate above 4 per cent," Mr Christopher said.
Provided the cash rate does not tip over 4 per cent, Mr Christopher says he anticipates a housing market bottom and recovery in late 2023.
However, the extent of the floor in values could be further weighed down by mortgage serviceability risks, with the majority of outstanding fixed loan terms secured through the pandemic to expire by the end of next year.
Where did we end the year?
The estimated total value of residential real estate shrank from $9.6 trillion in December 2021 to $9.4 trillion in November 2022, while the estimated annual sales fell 13.3 per cent, compared to a year ago, with approximately 535,000 homes sold across Australia.
In the RBA board's last meeting for 2022, the cash rate was lifted by 0.25 of a percentage point, taking the cash rate to 3.1 per cent, and variable interest rates to above 6 per cent.
The central bank will take a break during January. Its next rates meeting is scheduled for Tuesday, February 7.
