Aussie house prices to plunge 15%

Data from property research firm PropTrack shows that dwelling prices increased by 34% nationwide between February 2020 to June 2022.

However, PropTrack has forecast that housing prices will fall by 2-5% by the end of 2022 and a further 7-10% in 2023. The most expensive cities of Sydney and Melbourne are forecast to lead the falls, with prices declining between 3% and 6% this year and 9% to 12% in 2023.

Cameron Kusher of PropTrack says the series of official interest rate increases in recent months has accelerated the slowdown in house price growth. He expects the cash rate to rise to between 2.5 per cent and three per cent by the end of 2022:

The recent run-up in prices, coupled with reducing borrowing capacities as interest rates rise, is likely to see price falls broaden and then accelerate further into 2023, with the more expensive cities expected to record the largest price falls. Nationally, we are forecasting prices to fall by between -2% and -5% by the end of this year and by a further -7% to -10% by the end of next year.

By the end of this year, we expect the cash rate to rise to between 2.5% and 3%, with some further increases in early 2023. Thereafter, we expect rates to remain on hold with the potential for them to be reduced in late 2023 or early 2024.

Dwelling price forecasts

Whether these forecasts are met obviously depends on how aggressively the Reserve Bank of Australia (RBA) hikes interest rates.

The RBA’s own modelling says “that a 200-basis-point increase in interest rates from current levels would lower real housing prices by around 15% over a two-year period”. Based on this, a 2.5% cash rate implies an 18% real house price fall  nationally (~12% nominal), whereas a 3% cash rate implies a 22% real house price fall (~16% nominal). Sydney’s and Melbourne’s house price declines would obviously be greater than average, due to their more extreme valuations.

The ball is in the RBA’s court as to how far Australian house prices plunge. And the way it is heading, Australia is facing its biggest house price bust in living memory.

Unconventional Economist
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      • 1 this.
        I am one of those people. I had to buy through necessity (2nd kid on the way, dropping to 1 income, rented 4 different places over 6 years) or probably never get the chance to buy at all (as the bank would lend bugger all once my situation had changed).
        I always had a feeling that once I bought the market would probably turn not long after. Doesn’t make it any easier to deal with, just glad I fixed my rates, and am hoping that rates drop back down again before my fixed rate rolls off or it’s going to be horribly challenging to manage.

        • Hill Billy 55MEMBER

          Thanks for taking one for the Team. It sucks to be in such a situation, but thankfully you seem to have gone in with your eyes open.
          What the pollies etc do not allow is that any decision has winners and loosers. Sometimes the loosers are obvious, and they pander to them. Other times, not so much.
          Our landlord sold in October 2021. We couldn’t afford to buy because of the irrational exuberance, so we’ve been house sitting since, and are booked to mid January. It has its benefits, but also has a lot of negatives. Certainly a lot cheaper than owning or renting, so saving some serious money.
          We are getting tired of house sitting, so its unclear what we’ll be doing after mid January. I’m hopeful that prices are down sufficiently, but who knows.
          Cheers HB

        • See, I don’t understand that. I grew up in council flats.Everybody rented for years and years. Many still do. Nobody has to “buy out of necessity”.

          • I think some of the time the necessity is to keep up with the Joneses but I can understand if you are starting a family that there is pressure from the wifey to get some ‘security’ (what ever that means with a humungous mortgage).

      • happy valleyMEMBER

        No skin off Captain Phil’s bone either – his pension for 40+ years of bundying on at the RBA is possibly in the $5+m ballpark and he doesn’t have a mortgage apparently, so what’s there to worry about?

      • Agree. Housing to me is the canary. My guess is that unemployment rates will match housing declines. 50% down in housing equals 50% unemployed. This is the depth of asset allocation to housing in Australia with it being 70% of the punters “wealth”.

  1. So what, the RBA lowers rates by 1.5% and we get a 34% lift in house prices but we raise by 3-3.5% and we only get a 20% decline.

    I dont think so.

    Brace for impact.

    • BoomToBustMEMBER

      This is exactly what we are thinking, and even talk of rates dropping is questionable, the RBA didn’t stick to it’s implied “we won’t raise until 2023, and even then slowly”. If rates do drop after rising 3% then a .25% cut won’t make much difference.

      Let’s also not take these rate rises in isolation, there is a massive increase in daily living costs, if the AUD drops then that will push up many prices are well.

      Like everything, time will tell, only if you are on the wrong side of this you get financially wiped out with little hope of getting back.

    • 2023HomelessMEMBER

      While I largely agree. Loss aversion will make many hold on to avoid crystallising a loss, in hope of better times.

      But I agree, it will be more than 15% down with such a massive rate change. Even with loss aversion.

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