House prices could plunge by 18%, with more interest hikes expected next year, leading to falls in value of more than $200,000, Westpac has warned.
With inflation currently sitting at 7.3%, the fastest annual pace in 32 years, the Reserve Bank is predicted to lift interest rates further to get the consumer price index back within its target of 2% to 3%.
Matthew Hassan, Westpac senior economist, said further interest rate hikes would mean more property price drops, with finance regulations constraining what banks can lend, Daily Mail Australia reported.
“Australia's housing correction is showing no signs of letting up, prices and turnover again moving lower and declines spreading to more sub-markets,” Hassan said.
Just as concerned was credit ratings agency Moody’s Investors Service.
“Inflation will remain elevated with more rate increases, which will continue to restrain property market transactions and prices,” it said.
Sydney and Melbourne, Australia’s most expensive capital city markets, are tipped to see the sharpest falls in 2022 and 2023.
Sydney was expected to suffer a 10% drop in 2022 followed by an 8% dip in 2023 – a total 18% drop, which CoreLogic data showed would mean a $236,495 wipeout over two calendar years.
“Rapid correction underway, more sensitive to rate hikes due to stretched affordability,” Hassan said.
The correction in Sydney would see the city’s median house price plunge by $137,497 this year, from $1,374,970 at the end of 2021, before falling a further $98,998 in 2023 to $1,138,475.
Melbourne, meanwhile, was also expected to experience an 18% drop, with an 8% fall in 2022 then a 10% drop in 2023, with Westpac noting it was “more sensitive to rate hikes and migration slowdown.”
That scenario would result in the city’s median house price falling $79,834 this year, from $997,928, followed by another $91,809 decline in 2023. That would mean a $171,644 decline over two years to $826,284.
Brisbane was predicted to weather the downturn better with a 2% lift in 2022 followed by a 6% decline in 2023.
In Queensland, house prices would rise by $15,659 this year but fall by $47,918 in 2023. That would be a moderate net 4% drop of $32,258 over two years to $750,709 from $782,967 at the end of last year.
In Hobart, a market where real estate values compared with income are “extremely unaffordable,” house prices were expected to slip by 6% in 2022 then by 8% next year – a total 14% decline over two years that would see prices fall $101,020 to $646,167 from $747,187.
Expected to remain relatively unscathed was Perth, with a 2% rise in 2022 followed by a 4% dip in 2023. This net slip of 2% would mean a mere $11,593 fall in the median house price to $541,510 from $553,013.
“Stalled but less stretched affordability, tight supply, buoyant mining sector supportive,” Hassan said.
Adelaide was the only state capital city market expected to finish stronger despite the rate hikes.
“Still seeing strong sales, price gains – less susceptible to rate hikes but will be impacted,” Hassan said.
The South Australian capital was expected to see an 8% rise in 2022 then a 6% drop in 2023, for a net gain of 2%, which would see prices increase by $9,456 to $631,611 from $622,155 at the end of last year.
Westpac was predicting the cash rate to hit an 11-year high of 3.85% by May 2023, up from the current nine-year high of 2.85%.
This would see a borrower with an average $600,000 mortgage pay an extra $372 in their monthly mortgage repayments to $3,517, from $3,145, as a Commonwealth Bank variable rate lifted to 5.79% from 4.79%.
That’s on top of the $839 in repayments since the rate hikes started in May. The seven consecutive monthly interest rate hikes mark the most severe case of monetary policy tightening since 1994, Daily Mail Australia reported.
