Off the back of the RBA’s most rapid tightening cycle in more than 25 years, house prices are expected to continue on a downward trajectory, already falling by 6.6% from their April peak according to CoreLogic data.

The big-four banks and the RBA have all predicted house price falls, but how much will they really tumble?

What lies ahead for property prices?

PRD Chief Economist Dr Diaswati Mardiasmo said the future of the property market is closely tied to cash rate movements and the instability that comes with it.

“We are already seeing a translation of cash rate hikes in the market, with capital cities recording negative growth in the past 12 months,” Dr Mardiasmo told Savings.com.au.

“At the current rate, as an overall, we will see declining or slower growth depending on the area and property type.

“We’ve seen areas with normally double digit growth turn into single digit, and areas previously recording single digit growth now into negative territory. Already some areas have declined in property prices between 5-15%.”

With the RBA expected to bring the cash rate back down to under 3% in 2024, Dr Mardiasmo believes this is “when we might start to see some market recovery.” 

Here’s what the RBA and major banks have to say.

The Reserve Bank of Australia

According to internal RBA documents released under a Freedom of Information request by Nine Entertainment Newspapers, house prices could drop by 20% in the next two years.

“This is roughly twice as large as what we’ve assumed in our baseline,” RBA notes prepared ahead of an August policy meeting revealed.

The RBA expects national house prices to drop by 11% by the end of 2023, according to the internal documents.

CommBank

CommBank Head of Australian Economics Gareth Aird said the sharp increase in interest rates and a reduction in borrowing power have contributed to declining house prices.

“The rapid pace of RBA tightening has had an almost immediate impact on the demand for credit and by extension home prices,” Mr Aird said.

“That picture is not anticipated to change in the near term as the RBA continues to raise the cash rate.

“Our central scenario sees home prices fall 15% from their April peak.  This means that we expect a further fall in home prices of 9%. And we expect the trough to be achieved in mid-2023.”

Mr Aird did note these forecasts are conditional on a peak in the cash rate of 3.10% by year’s end.

NAB

Alan Oster, NAB Group Chief Economist, said higher rates are expected to impact all regions, but particularly those where affordability constraints are most binding.

“Our forecast for prices is broadly unchanged. We see a further 13% reduction in house prices from now, taking the total decline from April this year to around 20%,” Mr Oster said.

“Indeed, the two capital cities most bound by affordability constraints - Sydney and Melbourne - have fallen the most. However, strong economic conditions have likely mitigated some of the impact.

“Employment growth has been strong, wage growth is picking up and employment is low.”

NAB’s forecast is based on an expected peak in the official cash rate of 3.60% by March 2023.

Westpac

Westpac Senior Economist Matthew Hassan said while October’s home value data has stabilised compared to August and September, it doesn’t mean further declines are off the cards yet. 

“Overall, the moderating pace of monthly price declines is somewhat promising but should be kept in perspective,” Mr Hassan said.

“In annualised terms declines have moderated from a –16% pace in Q3 to a still formidable –12.8% pace in Oct. With more RBA hikes on the way, stabilisation still looks a long way off.”

Westpac economists predict a peak to trough decline in the order of 16%. 

ANZ

According to ANZ’s most recent housing report, capital city property prices are set to fall 18% over the balance of 2022-23, before climbing by a modest 5% in late 2024. 

ANZ senior economists Felicity Emmett and Adelaide Timbrell said the steep increases in mortgage rates between May and end-2022 along with reduced borrowing capacity are the main drivers for declining property prices.


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