A survey of 30 Australian economists and property experts by finder.com.au has suggested the downturn in Australia’s two largest cities could hang around for up to two years, with 20 months the average prediction.

Within that, however, more experts (56 per cent) believe Sydney’s downturn will last two or more years, compared with the 50 per cent of panellists who predict a similar outcome for Melbourne.  

“While the out-of-cycle rate movements aren’t promising for first home buyers, this may be offset by a cooling market as now could be the time for them to get in while prices are low,” insights manager Graham Cooke said.

“For many would-be home buyers, a lower sales price represents a saving that could outweigh the costs of a higher interest rate, so first time buyers may experience some cushioning against rising rates.”

He noted that panellists’ outlook for housing affordability has improved thanks to these falling prices, with 43 per cent of respondents describing it as positive and 52 per cent neutral.

However, 43 per cent of respondents also consider the outlook for household debt to be negative.

11th month of softening

Research house, CoreLogic, observed that the housing market correction has now ticked into its 11th consecutive month, with the national home value index tracking 0.3 per cent lower over August.

“Weaker housing market conditions can be tied back to a variety of factors, foremost of which is the tighter credit environment, which has slowed market activity, especially amongst investors,” CoreLogic head of research Tim Lawless commented.

“Fewer active buyers has led to higher inventory levels and reduced competition in the market. Collectively, these factors have been compounded by affordability challenges, reduced foreign investment and a rise in housing supply.”

CoreLogic’s analysis echoes finder.com.au, highlighting the weakest performing regions of Sydney and Melbourne.

“Stronger market conditions across Australia’s more affordable areas are likely attributable to a rise of first home buyers in the market as well as changing credit policies focused on reducing exposure to high debt-to-income ratios,” Mr Lawless said.

“In the higher value cities like Sydney and Melbourne, we’re seeing typical dwelling prices remain more than eight times higher than median household incomes, suggesting tighter credit conditions for borrowers with a high debt-to-income ratio will likely impact on demand more in these cities over others.”

Borrowers, strap in

To finder.com.au’s Mr Cooke, borrowers should be prepared for higher interest rates after Westpac hiked rates last week due to overseas funding pressure.

“We expect this trend to continue, with the remaining of the big four and other lenders likely to follow suit in the coming days,” he said.

“Mortgage holders should brace themselves for higher interest rates – it’s not a matter of if, but when.”