Premium real estate leads regional home price drop as ANZ points to 18 percent nationwide housing slump – ABC News | Vette Leader

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.

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.

Graph showing how much borrowing capacity falls when interest rates rise.
Maximum borrowing capacity falls as interest rates rise, limiting bidding for potential homebuyers.(Scope of delivery: ANZ)

“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.

Leave a Comment