Prices are expected to fall by 14 per cent over two-and-a-half years.
The growth of Australia’s property market is expected to flatten within months before prices start to fall later this year, according to updated forecasts from Westpac.
The bank has brought forward its forecast for prices to flatten by May 2022 rather than in the second half of the year ahead of a decline during the December quarter in response to anticipated rate rises in August and October.
Prices are then expected to drop by 7 per cent in 2023 and a further 5 per cent in 2024, resulting in a total fall of 14 per cent over a two-and-a-half-year period.
“In level terms, this means prices at the end of 2024 will be on a par with their level in April last year,” said Westpac chief economist Bill Evans and senior economist Matthew Hassan.
“The peak to trough decline is comparable to most previous price corrections over the last 40 years when measured in real, inflation-adjusted terms, but milder than the Sydney and Melbourne price corrections in 2017-18.”
The Westpac economists said that housing would be collateral damage in the RBA’s efforts to keep inflation within its target range over the medium term.
“The sector is highly sensitive to interest rate changes. With affordability already stretched in many markets, rate rises will have a direct impact on the borrowing capacity of buyers and their ability and willingness to sustain high prices,” they said.
“The extraordinary surge in prices over the last year has seen affordability deteriorate to be near previous lows in 2010 and 2007 – both of these earlier benchmarks were at times when the average discounted variable mortgage rate was materially higher than it is now.”
Westpac’s forecasts suggest national house prices will rise 2 per cent in 2022, including rises of 8 per cent in Brisbane and Adelaide and 2 per cent in Perth.
Meanwhile, Sydney, Melbourne and Hobart are all expected to end the year flat.
“Prices in markets facing more stretched affordability will be more sensitive to interest rate rises,” Westpac said.
“Sydney, Melbourne and Hobart are expected to see earlier and more pronounced price corrections. Brisbane and Adelaide are expected to see a milder price cycle.”
Sydney and Melbourne will have the largest falls during both 2023 and 2024, according to the bank’s forecasts, with drops of 9 per cent for both cities in 2023, followed by a 5 per cent fall for Sydney and 6 per cent for Melbourne in 2024.
In comparison, Westpac expects house prices in Perth and Hobart will drop 6 per cent during 2023, while prices in Brisbane and Adelaide will drop by 4 per cent.
The decline in these capital cities is then expected to ease throughout 2024, with Brisbane, Perth and Adelaide ending the year down 1 per cent and Hobart down 2 per cent.
“By the end of 2024 the mix of lower prices and higher incomes will have more than offset the effect of higher rates restoring affordability to more normal levels for most markets,” said Mr Evans and Mr Hassan.
“However, with the RBA successfully achieving its target of sustainable inflation within the target zone without needing to adopt a sharply contractionary stance prospects for a near term rate cut cycle will be remote and housing markets will need to adjust to the prospect that, in the absence of some major shock like COVID or the GFC, rates are unlikely to ease in the foreseeable future.”
RELATED ARTICLES
Property
How to leverage equity in your home for investment or renovation
Home equity, the value of your property minus any debts owed, is a powerful financial resource many homeowners in Australia can utilize to further their financial goals. Whether you're looking to ...Read more
Property
Exploring REITs: Real estate investment without buying property
Real Estate Investment Trusts (REITs) offer a compelling investment alternative for those interested in the real estate market but may not want to endure the complexities and capital requirements of ...Read more
Property
Retirement communities: a pivotal element in meeting Australia's housing targets
The Retirement Living Council (RLC) has recommended that retirement communities should be considered a vital part in the Australian Government's initiative to fulfill the Housing Australia Future Fund ...Read more
Property
Australians adjust financial strategies amid changing property market dynamics
The 2023 calendar year saw Australian borrowers acquiring a total of $300.9 billion in new loans for property purchases, marking a 12.7% decrease from the previous year. Read more
Property
Split home loans unlocking doors for Aussie buyers
Australians are teaming up to dive into the real estate market and seize the advantages of home ownership, with the trend of split home loans surging as family and friends unite to buy properties ...Read more
Property
Real estate investment: Spotting high-growth potentials
Investing in real estate has long been a favoured approach for Australians looking to grow their wealth. Read more
Property
Granny flats become Aussie families' cost-effective solution to soaring living costs
As the cost of living skyrockets, a forward-thinking trend is sweeping across Australia – granny flats are becoming a favoured living arrangement for older Aussies seeking comfort and proximity to ...Read more
Property
Homebuyers grapple with extended savings period amid affordability crisis
Gone are the days when an Australian dream home seemed just within reach. The path to homeownership in Australia has extended by at least two arduous years, as revealed by the latest insights from ...Read more
