NAB: Sydney and Melbourne house prices to plummet 22%

NAB’s Q2 residential property survey is out, with the bank viciously downgrading its outlook for Australia’s housing market.

NAB now forecasts that Sydney and Melbourne dwelling values will plunge by around 22% over 2022 and 2023, with the other capitals also forecast to record heavy falls next year as the cash rate soars to 2.6%:

We have revised down our outlook for property prices, and now expect a larger peak to trough fall of around 18%. Sydney and Melbourne are expected to lead the declines, though the impact of higher rates is expected to impact all capitals. That sees the 8-capital city dwelling price index end 2022 down 3.7% (previously +2.5%) before falling a further 14% in 2023 (was -9.3%)…

In an historical context, this would be a very large fall in nominal terms, but is expected to occur alongside a relatively steep increase in interest rates and comes after a 25% increase in prices through the pandemic alone…

We largely see the adjustment in prices coming through reduced borrowing power, which will bind more in the larger capitals that have larger affordability issues…

Both Sydney and Melbourne have seen the most significant run-ups in prices over the past decade as rates have trended lower and most likely face the most binding affordability constraints…

On inflation, we see both headline and underlying measures rising further, peaking in the second half of 2022 – but remaining well above the target band in 2023. While many of the transitory factors that have been a significant boost to prices will fade, or even unwind, a tighter labour market and faster wage growth will eventually see domestic inflation pressure build. As a result, we think the RBA will continue to normalise rates at a rapid pace, lifting the cash rate by 50 bps at each of the next two meetings, with a 25 bps follow up in November, taking the cash rate to 2.1% by year end. We see a further two 25 bps increases in 2023, taking the cash rate to a broadly neutral level at 2.6%.

NAB’s price forecast looks about right in the context of a terminal cash rate of 2.6%.

That said, the futures market is tipping the cash rate to hit 3.7% by mid next year. If this was to occur, dwelling values would obviously fall much further.

Ultimately, how deep prices fall depends on the aggressiveness of the Reserve Bank of Australia.

Unconventional Economist

Comments

  1. Dave666MEMBER

    Unless we slam into a global recession by year end and inflation and rates are going down!
    Hard to say for sure, but you never know.

    • Strange EconomicsMEMBER

      Even 20% does not fix prices. Back to 8 times income woohoo, still world leading.
      Needs to drop back 50% to actually be affordable.

      After 20 % up last year, even a 20% drop will only take it back to 2020, which was still doubled over 7 years.
      So most punters are way up, and will consider it a FOMO buying opportunity !
      There are very few people actually affected from non-property work.

      Who – a few punters last year, who had traded up to 2 to 4 million houses, thus collecting the 1 million profit from their previous place, and a few FHBs, 50% of whom have deposits put in by their parents doubled house values, so this will have little effect on the rest of the economy.

      • Goldstandard1MEMBER

        I expect the 20% to be gone within 12 months, and then it keeps going. This one with all the headwinds is VERY different.

      • Agree price needs to come back 50% but I don’t feel that lucky.
        I am hoping UE doesn’t jinx the process by writing about it.
        Having said that a 50% retracement will spell the end for our economic/financial system. Well deserved I think.

        • Strange EconomicsMEMBER

          At 50 % drop the price might be reasonable on the fundamentals- of rent being 20% of income, and a yield of 5%. And considering iron ore tax to the govt will disappear in a few years through oversupply as the Chinese economy slumps.

          However , once house prices drop more than last years 20% bump the govt and banks will panic and run to the rescue, so no chance of that.
          Itll be super into houses, tax breaks, bank subsidies, and tell the RBA to be explicit that their mandate is really for high house prices, forget inflation,
          and pump it back up.

          • Strange EconomicsMEMBER

            Perhaps the govt can put a windfall tax on gas and iron ore, and dedicate all the proceeds to FHBs to get the market back up !

    • Havent we been in a recession since the GFC?…other than the Pandemic, why else have rates been going down….its all a lie…

      • Dave666MEMBER

        No recession at the moment. Have a look at the number of people at Sydney airport in the last few days. Yes, its school holiday time, but wow.

        You might be a young fella, because the last real recession was in the late 80’s. Almost everyone was doing it tough, and no free handouts back then.

        • Goldstandard1MEMBER

          Most ppl are still spending credit. Wait until rates are higher and houses are lower. I think you’ll see jobs and holidays go by Christmas – then you’ll SEE it.

        • Four legs better than 2.
          Recession for some but not others, clearly the folk jetting out of airports are in the money…however
          Many will own nothing & be happy about it:
          seems they haven’t got message yet as 80 people traipse through a clapped out rental looking miserable as f**k as they take in assorted features of an affordable 3 bedroom rental house $370 – $550 per week.
          Overwhelming smell of damp
          Mouldy shower
          Cracked shower recess if ‘updated bathroom
          No room to swing a cat
          No heating
          Reliable gas heater replaced by split $hit system
          Garage not included
          Shed not included
          Sunroom not included
          No access to driveway
          Carpet ripped up, mouldy walls painted over in white & decent half inch gap between wall & floor for dust & fresh air ingress
          Water damaged window frames
          Windows painted shut
          1930’s classic tap ware
          New build under construction in ex backyard
          Under bench laundry in tiny galley kitchen
          Dishwasher to be removed
          Heater to be removed
          Any amenity to be removed prior to lease
          …….
          Carpet, garage, laundry, garden, heating, bath, etc luxuries for the $600 plus per week
          Fair enough cos tenants are useless cnvts but necessary evil cos they pay the mortgage
          Happy Weekend to NON recessed
          &
          Happy New World Order to the rest
          Seriously is klaus Schwab real or an Actwh0re?
          Asking for a friend cos him & his mate Avi sound bonkers but he wrote a book apparent& has the ears of global & local leaders everywhere.
          Even Daniel Andrew’s is [email protected]$ deep in Klaus Schabs BS .. not literally though..just figuratively

          • Strange EconomicsMEMBER

            Sounds like a Bargain house for Sydney or Melbourne. Only a bit of damp?
            A landlords dream.

  2. Arthur Schopenhauer

    NAB now forecasts that Sydney and Melbourne dwelling values will plunge by around 22% over 2022 and 2023…

    Translation: As an institution, we intend to lend 22% less to punters over 2022 and 2023, than we lent in 2020 and 2021…

    Won’t anyone think of the Jetski retailers!

    • Quantitative FleecingMEMBER

      If the banks are forecasting 22% I’d say we’re headed for 30-40% in reality. Don’t forget the banks have been bullish (publicly) throughout as it’s in their interest to be so (publicly).

      • UpperWestsideMEMBER

        I saw Macquarie was advertising housing loans when I was in Aus last month
        I think the day they started advertising was probably the top tick

  3. working class hamMEMBER

    How long will the drop continue until intervention?
    Some form of market manipulation is guaranteed, what and when is always a surprise.

    • Well the central banking WEF cartel is saying the days of low interest rates are over. So logically this is the no bail out reaping phase they refer to as the great reset.

      • working class hamMEMBER

        Rates aren’t the only way that the market has been messed with. Once lenders and LMI companies start feeling the bite of negative equity, the bag of tricks will be opened again.

  4. SuperfluousMEMBER

    “…as the cash rate soars to 2.6%…”
    Haha, everything is relative I guess…

  5. MathiasMEMBER

    Wasnt Westpac and NAB the two banks which nearly closed doors for good back in 2008?

    Its nice to see all thats been fixed.

  6. 2023HomelessMEMBER

    Question for someone who knows APRA rules.

    If a bank is forecasting a 22% decline. Does it meet prudential requirements to provide a loan with a 5% deposit? Or are they required to increase minimum deposits? Or will they do it anyway to manage internal risks? And how would a valuer decide a value today? Are they likely to be conservative, resulting in more cash required for loans?

    • Good question. They might base the minimum deposits on the bank’s overall financial position or capital though?

    • They are required to have a viable valuation and collateral to cover market risks. As they see the market risks increasing, the likelihood of a 5% deposit loan are slim if there is no other collateral for them to call on.

  7. Next 35000 spots with a 5% deposit about to come on the govt guaranteed loan thingy. Does that mean they could be in the hole by 17% end of next yr ??

  8. gballardMEMBER

    Not suprising. There will be blood on the street for many recent dwelling purchasers and yet we have recent government policy which will allow some (unlucky) apiring home owners to purchase on a 2% deposit.. Talk about leading them lemming like over the cliff. Politicians are basically stupid and re-active.