Effect of inflation on the property market

With inflation accelerating in Australia, fuel and food costs have been at the forefront of people's minds. However, what will be the impact on the property market, and how will it all play out?

Whilst house prices have been falling; the construction industry has felt the real brunt of the price pain. The downside of fixed price contracts has seen the collapse of several building companies as the rising prices take their toll. Supplies of timber and steel have rapidly risen, exacerbated in no small detail by global supply chain shortages imposed by the pandemic restrictions. 

In a recent report, property research group, Corelogic's director Tim Lawless warned that the housing market is facing significant headwinds. A combination of supply side constraints, high new housing demand, labour shortages, and higher transport costs have hit the industry hard, and Lawless expects it will take another 12-18 months to work through the issues. 

According to NAB economists, the Australian economy is expected to grow this year at a rate of 2.3%, before moderating to 1.8% in the subsequent two years. Financial experts expect inflation to peak at around 7% towards the end of this year and begin to ease mid-2023. 

As interest rates continue to increase, this would lead to a contraction in new home builds, pricing out potential buyers from mortgages. This could cause the market for property sales and rentals - which is already tight-to become even more competitive as developers reduce their production levels. 

Property investors need to pay close attention to both inflation in the economy and RBA interest rises. If you are unsure how these changes will affect your current loan, finances, or potential loan application, then book a meeting with Concise Finance and let us take out the guesswork for you.