Investment bank Jarden has forecast that Australian house prices will fall by 20-25% peak-to-trough in the wake of the Reserve Bank of Australia’s (RBA) latest interest rate increase and hawkish commentary.
Jarden had previously forecast that house prices would fall by 15-20% nationally.
Jarden’s new forecast would effectively result in house prices returning to pre-Covid levels.
Commenting on the RBA’s latest monetary policy decision, Jarden’s Carlos Cacho and Anthony Malouf wrote that “we now see too much downside risk to our long-held forecast of a 15-20% peak-to-trough fall in house prices and downgrade to a 20-25% correction”.
House prices are tipped to fall 15% in 2023 and will become Australia’s largest price correction on record, pushing national prices back to 2020 levels, and erasing the pandemic boom.
However, Jarden then sees a big price bounce in 2024 driven largely by rate cuts and the Australian Prudential Regulatory Authority (APRA) easing mortgage serviceability requirements.
“We now expect a stronger 10%-plus recovery in 2024, driven by a combination of the Australian Prudential Regulation Authority lowering the serviceability buffer to 2%, 1.5% of RBA rate cuts from 2024 and the Stage 3 tax cuts”, the authors said.
Before Tuesday’s rate hike, consensus forecasts were bang in line with Jarden and expected a peak-to-trough decline in Australian dwelling values of between 15% and 20%, with values expected to bottom late this year.
But now that the RBA has lifted its interest rate guidance, house prices are likely to fall further in response to shrinking borrowing capacity.
After going too hard on interest rate hikes, alongside the fixed rate mortgage reset, I expect the Australian economy to weaken considerably over the first half of 2023.
This will then prompt the RBA to commence a rate cutting cycle later in the year to stave off recession.
Once these rate cuts arrive, the RBA will lay the foundation for another property upswing leading into 2024.
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