Will the housing market cool down in 2022? Insights from WLTH’s CEO

- December 16, 2021 3 MIN READ
Will the housing market cool down?

Moves by APRA, migration outflows, mortgage demands, and overvalued house prices lead us to predict a housing market cool down.

The Australian property market has enjoyed incredible growth in the past two years, pushing aside predictions that the global pandemic would cause property prices to plummet.

Australia’s property market has sustained strong price gains through recent lockdowns in New South Wales, Victoria, and the Australian Capital Territory. The Australian market has maintained a 22 per cent gain for the whole year as a whole.

Predicting if the market will cool is notoriously hard, but history indicates that the Australian Prudential Regulation Authority (APRA) will most likely intervene in early 2022. Coupled with migration outflows, mortgage demands, and overvalued house prices lead us to predict the market will eventually cool.

What causes the market to cool?

What causes the property market to cool, and what does this mean for Australia’s housing prices in 2022?

The factors contributing to Australia’s property movements:

Interest rates

Interest rates impact the price and demand of property, with lower rates securing more buyers and expanding demand, which drives prices up.

In October 2021, the ARPA introduced stricter lending standards to curb rising household debt, restricting borrowers’ capacity to purchase a property.

Top tips for mortgage borrowers amid tougher lending restrictions

A policy move is expected in February 2022, as APRA is poised to reduce government bonds’ purchases. This will further reduce borrowers’ buying power. To increase serviceability buffer rates, this policy move will likely target investors.

Government policies

During the pandemic, government stimulus created movement in the market, providing more opportunities for first home buyers and boosting property demand.

The HomeBuilder and stamp duty concessions have recently expired. This will see young Australians finding it much harder to enter the property market than during the boom in the new year.

The demand for mortgages from would-be-first-time buyers is progressively smaller. Property prices have outstripped wages and stricter lending standards have made it harder for them to buy.


Property prices often follow the economy’s cycle, but investors can mitigate this risk by using investment trusts or other holdings that can withstand downturns.

The Australian Bureau of Statistics (ABS) shared that the value of new housing loans commitments fell to 1.4 per cent in September 2021. This was driven by a 2.7 per cent drop in demand from owner-occupiers.

The value of housing loans for investors increased by 1.4 per cent to stand 83.2 per cent higher than the year earlier. With borders reopening and Australians returning home, this number will only increase.

These investors are primarily responsible for driving prices up and will help continue Australia’s property boom momentum.

So, when will the market cool and where?

The momentum from the property boom is anticipated to carry into 2022 with an 8 per cent increase. It won’t be until 2023 that borrowers will feel the impact of a decrease in housing affordability and policy tightening. It’s then we’ll see the housing market cool down.

To understand the full implications of any potential APRA announcements on borrowing power, all we can do is wait and see. As banks and lenders respond to these recommendations, those who took out a large loan during the boom and first home buyers looking to enter the market will most likely feel the effects of rate changes.

After the market cools after a red-hot 18 months, investors will scramble to secure a place on the property ladder. Interest rate hikes will likely deter first home buyers as well. The rise of virtual buying will only accelerate this growth, as investors get used to the new method for property purchase.

As international borders open, Australians returning home from overseas will drive a surge in demand for property. This demand will impact supply and housing affordability.

The unpredictable times ahead will see many borrowers shaking up their interest rates. Homeowners with more cash reserves will contemplate benefiting from the rise in property prices and seek ways to benefit from this.

Sydney and Melbourne

Australia’s capital cities, such as Sydney and Melbourne have spent much of the year in lockdown. They will experience the most effective cooling and regression in prices.


Off the back of Brisbane’s bid to host the 2023 Olympics Games, the city’s resilience during the pandemic will see the city continue to roar ahead. This will increase the heat in the market. In 2021, Brisbane experienced a 22 per cent growth which will increase in the new year. This signals significant social and economic opportunities for the city.

For most of Australia’s property market, the storm clouds are on their way as booms can’t last forever. If the property market does not cool by the end of 2022, the APRA will intervene to ensure a soft landing.