Scott Pape, a well-known financial expert, has issued a warning that Australian home values are dropping “at one of the quickest rates on record.”
In a piece that was published on Monday, Mr. Pape, the popular author of books under the moniker The Barefoot Investor, said he “wouldn’t be astonished” if home values fell from the 30% increases they had seen during the Covid era.
Australian home prices increased by an average of 24.6% between March 2020 and February 2022, according to the real estate research company CoreLogic, as a result of “low interest rates, substantial family savings, government handouts and a dramatic drop in the supply of houses.”
But in an effort to combat the highest inflation rates recorded since 1990, the Reserve Bank of Australia has aggressively increased interest rates from historically low levels to 2.60 per cent since May.
The typical borrower now pays $715 more per month in mortgage repayments as a result of the continuous monthly increases.
The rate increases are primarily to blame for Australia’s rapid decline in the median home price, which fell by 1.6% in August and another 1.4% in September.
According to CoreLogic statistics, the median home price has decreased by 4.5% from the year’s commencement.
The typical home price in Sydney was reduced by more than $114,000 throughout the course of consecutive monthly declines in property prices between April and August, or $927 per day.
In contrast, the typical property price in Melbourne fell by 4.4% between April and August, amounting to $51,000, or $415 per day.
Some experts predict that after the RBA interest rate increases take full impact, the median home price might drop by up to 25%. This is because further RBA interest rate increases are likely.
House prices might ultimately give up the 30% increases they saw during the Covid era, Mr. Pape said in his Monday piece for The Australian Business Network.
“That is a lot. He said, “It’s the kind of jolt to the system that sends an economy into recession.”
The RBA’s decision to raise interest rates will have a significant impact. However, the RBA’s ability to predict interest rates, which they determine, has been compared to my youngest son’s ability to urinate while standing.
The sixth straight rate increase by the RBA, 0.25 percentage points, was less drastic than prior increases.
Some analysts have updated their predictions for the peak in the cash rate as a result of the unexpected change to a slower pace of tightening.
The cash rate is anticipated to reach a peak of 25 basis points higher than the previously predicted 3.35 percent to 3.6 percent in May of the following year, according to ANZ analysts.
The bank’s analysts believe that the RBA’s move to lower interest rates by 25 basis points would prolong the cycle of rate increases and may possibly compel the bank to boost the cash rate higher than anticipated.
According to ANZ economist David Plank, “the slower pace of rate rises raises the likelihood that rates need to go higher than previously predicted, if demand remains too robust and sentiment is first buoyed by the RBA’s moderation.”