An earlier and more aggressive interest rate tightening cycle has brought forward the downturn of Australia’s property market, according to Westpac’s latest housing pulse report.

The bank suggested that the market had entered a “broad-based correction phase” in which the speed and extent of rate tightening will play a key role.

“Current conditions have already turned, sales down sharply from last year's extreme highs, and prices all but stalling nationally. Buyer sentiment is plumbing new cycle lows and house price expectations are being pared back quickly,” Westpac said.

House prices are now expected to have fallen by 2 per cent by the end of this year, ahead of an 8 per cent drop in 2023 and a 1 per cent dip in 2024.

Westpac predicted that the cash rate will peak at 2.25 per cent in May next year and remain at this level throughout the rest of 2023 and into 2024.

The bank noted that the RBA had been forced to move more quickly than expected on interest rates as a result of the recent spike in inflation, with the consumer price index up 5.1 per cent annually during the March quarter.

So far this year, housing market turnover has fallen 23 per cent in comparison to the highs recorded last year while annual price growth is set to dip to 11.8 per cent during May versus over 20 per cent in January.

Westpac said that housing market sentiment had continued to sour with the bank’s measure of ‘time to buy’ reaching a post-GFC low.

“While the weakening is broad–based, the state detail continues to show three distinct groups, separated by the degree to which stretched affordability has heightened sensitivity to rates,” said Westpac.

“NSW and Victoria are firmly in the 'most sensitive' group, capital cities in both states already seeing prices slip lower. WA and Tasmania are a little less sensitive. Queensland and SA remain more resilient, price growth only just starting to slow and coming from a strong starting point in both.”

The property market boom in NSW is “well and truly over”, Westpac indicated, with a sharp fall in turnover since the start of the year and prices beginning to decline.

Meanwhile, the bank said that the Victorian property market was cooling rapidly with turnover retracing sharply and prices dipping.

In contrast, the market in Queensland has gone “from red hot to hot” with turnover down but still historically high and price gains on track to deliver double digital annual growth.

Westpac noted that South Australia was the only major state where strong gains were still being recorded, with ongoing high turnover and sustained price growth.