Australia’s housing market is expected to fall 18 percent, according to a major bank, and new data shows Sydney and Melbourne joining regional areas in the slide.
- ANZ projects house prices to fall by 18 percent in 2022-23 before a 5 percent rebound in late 2024
- The bank says the projection is mainly due to reduced borrowing capacity from rising interest rates
- CoreLogic says some high-end regional real estate markets are already falling and other areas will follow
The prediction of an 18 percent collapse in house prices comes from ANZ, which slightly increased its forecast fall on the back of aggressive Reserve Bank rate hikes.
Economists at ANZ expect the RBA to raise its interest rate target to 3.35 percent before the end of the year, which would bring typical adjustable-rate mortgage rates close to 6 percent.
“We expect prices in the capital to fall 18 per cent compared to 2022 and 2023, before rising 5 per cent in 2024 on falling mortgage rates,” wrote Felicity Emmett and Adelaide Timbrell, senior economists at ANZ.
“The biggest factor driving prices down is reduced borrowing capacity, not an increase in forced sales.
“Definition rates are coming from a very low base, households have built up large liquidity buffers, and the increase in the share of loans in negative equity is expected to be modest.”
Economists pointed to a sharp reduction in maximum loan sizes as banks test whether mortgage applicants can service their loans at much higher interest rates than earlier this year.
“Our forecast that the policy rate will reach 3.35 percent represents a nearly 30 percent reduction in borrowing capacity,” they noted.
“This lower ability to pay will drive prices down in the coming months.
ANZ’s forecast is in line with other major financial institutions, with Commonwealth Bank economists expecting a fall of at least 15 percent even if the RBA cash rate only meets the CBA’s forecast of 2.6 percent.
ANZ economists said a tight rental market, rising immigration and low unemployment would help moderate the decline, but it would take a forecast cut in interest rates to see the market reverse.
“In 2024 we expect the start of a recovery in property prices, along with interest rate cuts in the second half of the year. We expect prices to rise about 5 percent in 2024,” the economists added.
They forecast the biggest declines this year in Sydney and Melbourne, the most expensive capital markets and therefore hardest hit by the impact of reduced maximum home loans.
“Regional prices appear to have peaked”
As with the smaller capitals, ANZ expects the rise in interest rates and the reduction in borrowing capacity to eventually hit previously buoyant regional housing markets.
New data from CoreLogic suggests this is already happening in some of the pricier regional areas, where reductions in maximum borrowing due to rising interest rates are again having the biggest impact.
The real estate research firm said the largest quarterly declines in home values were in the Richmond-Tweed area (-4.5 percent), followed by Illawarra (-3.5 percent) and Southern Highlands and Shoalhaven (-3.0 percent). all in NSW, with the latter two areas within two hours’ drive of Sydney.
South East Queensland’s two main regional lifestyle markets, the Sunshine Coast and the Gold Coast, also saw home values fall by -2.5 and -1.2 percent, respectively, over the past three months.
“Typically, higher median markets tend to lead the broader market as they move through different cycles,” said CoreLogic economist Kaytlin Ezzy.
“Having recorded some of the strongest increases in value during the COVID period, each of these areas now has a median home value in excess of $1 million.
“As we move further into the downside of the cycle, we would expect this fall in value to spread to more regional areas.”
Over the past year through July, regional markets have seen house prices rise 17 percent on average versus a 5.4 percent rise in the capitals, where major markets like Sydney and Melbourne were already falling from their pandemic peaks.
CoreLogic said that NSW’s Riverina region was the best-performing regional home market with annual growth of 27.8 percent, followed by Queensland’s Wide Bay (up 26.8 percent) and NSW’s New England and North West (up 26.4 percent). .
Ms Ezzy said she expected the decline to spread to regional markets but perhaps not as severe as in some capital cities.
“It’s possible that the regional areas are a bit more isolated than the capital cities thanks to the relative affordability of these markets and the low advertised levels of supply,” she explained.