ANZ now expects house prices will end the year lower

By Jon Bragg

May 18 2022
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With higher interest rates on the horizon, the bank is forecasting larger house price declines than previously expected.

ANZ has made a major revision to its house price forecasts for 2022 with a fall of 3 per cent now expected on average across the capital cities, down from its previous prediction of an 8 per cent rise.

House prices next year are also expected to decline more than the bank predicted in its earlier forecasts made before the Reserve Bank (RBA) kicked off its rapid tightening cycle, with a drop of 8 per cent rather than 6 per cent now anticipated.

“While the return of immigration, falling unemployment and rising wages will be supportive factors, higher rates will trump the positive fundamentals, and we expect national prices to turn down this year,” commented ANZ senior economists Felicity Emmett and Adelaide Timbrell.

Sydney and Melbourne, which have both suffered a decline in prices so far this year, are expected to be the worst performers by the year’s end.

ANZ has predicted a fall of 7 per cent for Sydney in 2022 and 8 per cent in 2023 while Melbourne is forecast to experience a fall of 5 per cent this year and 6 per cent next year.

Price growth will persist in Adelaide, Brisbane and Perth, according to the bank’s outlook, which have been among the strongest performers so far this year.

However, 2023 is then expected to bring significant falls of 13 per cent for Adelaide, 9 per cent for Brisbane and 7 per cent for Perth.

“Rising fixed mortgage rates, macroprudential tightening, elevated supply and affordability constraints were weighing on the market before the cash rate began to rise earlier this month. Auction clearance rates are trending lower and are likely to continue to do so,” said Ms Emmett and Ms Timbrell.

“Housing finance for both investors and owner-occupiers is high, but growth has slowed sharply. Sentiment about house prices has also turned lower. Working in the other direction, rising immigration, a tight rental market, cashed-up households and falling unemployment will be supportive.”

ANZ’s forecasts put the cash rate at 2.35 per cent by mid-2023, which the bank said would push variable mortgage rates to around 4.75 per cent.

“This will significantly reduce borrowing capacity, which will flow through to lower prices. We think that reduced borrowing capacity will be the key driver of lower prices and see only a very small risk of forced selling,” the ANZ economists said.

But the bank said it was confident that households would be able to cope with the impacts of looming higher interest rates.

“Undoubtedly some will struggle with higher repayments, but on average households are well ahead on their mortgage repayments, have large savings buffers and a promising outlook for both jobs and incomes,” Ms Emmett and Ms Timbrell said.

“After a peak-to-trough rise in house prices of 25 per cent since late 2020, our forecast decline of 11 per cent will still put prices well above pre-pandemic levels. Falling house prices will weigh on consumer spending through the wealth effect, but high savings will provide a solid buffer.”

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