How much are house prices tipped to fall?

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on May 11, 2022 Fact Checked
How much are house prices tipped to fall?

With the RBA cash rate rise causing a ruckus, a few experts have weighed in on the future of the housing market.

Off the back of the RBA cash rate hike last week, many experts have chimed in on what will happen to house prices in the coming years.

Westpac, HSBC and AMP economists have all predicted house price falls - but how much do they believe they will tumble?


Westpac chief executive Peter King has anticipated that house prices will fall 10 to 15% over the next two years, with signs of a housing slowdown already evident according to Westpac economists' predictions.

Specifically, Westpac forecasts a 2% drop this year followed by an 8% decline next year.

This comes as the bank's half-year cash earnings were announced at $3.1 billion, which is a 71% increase on the previous half.

Mr King said a larger share of borrowers' income will be spent on housing, with Westpac economists predicting a 2.25% cash rate target by next year.

"That’s what people have to be thinking about and getting prepared for, and the way money is spent in the broader economy is probably going to change," Mr King said.

"Depending on what kind of rate cycle we’ll see, there may be less income available for other discretionary spending."


Chief Economist at AMP Shane Oliver also said the bank expects to see a 10 to 15% drop in the next two years and noting that, generally speaking, higher interest rates cause falls in property prices.

"[This is] simply because as interest rates go up, people are unable to borrow as much, and therefore, they're unable to pay as much for their houses," Dr Oliver told Savings.com.au last month.

"The other thing that happens when interest rates go up is that some people default on their loans, and that causes forced selling. So there’s less demand and increased supply."


HSBC's chief economist Paul Bloxham has also tipped that housing prices could fall by up to 10% next year.

Mr Bloxham said the housing boom was bolstered by the "sharp fall in interest rates to all-time lows", and the RBA guidance indicating they would stay low.

HSBC expects housing prices to rise between 5 and 9% in 2022, but to then begin falling in the second half of the year as the cash rate rises to 1.35%.

"A 175 [basis point] rise in the cash rate, as we expect over coming quarters, would be expected to drive an 16% fall in real housing prices over two years," Mr Bloxham said.

"We also expect the rental market to continue to tighten, lifting rents, as international migrants and students support demand, and housing investors seek rental return as capital gains diminish."

As a result, the bank changed its house price forecasts from growth of 1 to 4% in 2023 to a fall between 5 and 10%.

Is it all doom and gloom?

While these experts are tipping house prices will fall, they're not the only opinions out there.

For example, Propertyology's Head of Research Simon Pressley believes house prices will increase by 30 to 50% over the next two years.

Mr Pressley also went against the grain at the start of the pandemic, when he predicted house prices would soar despite the big banks expecting massive falls.

"The combined sum of the many factors that influence property prices points towards a continuation of very strong growth in asset values for quite some time yet," he said.

He said the "lifestyle movement", which drove many city dwellers to regional towns, will see a plethora of regional locations see up to 30% property price growth this year.

For reference, regional property was more profitable than capital city property over the past quarter according to CoreLogic's latest figures.

Other factors including the return of overseas migration, near record-low unemployment levels, and fewer COVID-19 restrictions could keep the property market robust.


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Rachel is a Finance Journalist, and joined Savings in 2021. Coming from a background in the FinTech space, her interests include the innovation of lending technology, property, investing, and more. With a passion for educating and informing people about their finances, she hopes to increase the financial literacy of everyday Australians.

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