By the end of next year, Sydney and Melbourne property prices are expected to decline by 18%, according to Westpac Bank.
Real estate prices have decreased in Australia’s two largest cities, along with Hobart, as a result of a series of interest rate increases since May that were the sharpest in over three decades.
Brisbane, Perth, and Adelaide would all continue to have growth in 2022 before experiencing single-digit declines in 2023, according to the bank’s forecast.
Sydney was predicted to be the market with the greatest impact this year, with a 10% decline in 2022 and an 8% decline in 2023.
When compared to the December 2021 level of $1,374,970 in the CoreLogic data series, the 18% reduction would cause Sydney’s median home price to fall by $236,495 to $1,138,475. This decline would occur over two calendar years.
Due to strained affordability, house borrowers were “more sensitive to rate rises,” according to Westpac, who claimed that a “rapid correction” was in progress.
Melbourne was also expected to have an 18% decline, with drops of 8% and 10% expected in 2022 and 2023, respectively.
The second-most populous city in Australia, according to Westpac, was more susceptible to a “migration slowdown.”
As a result, the median home price in the Victorian state capital will decrease by $171,644, from $997,928 at the end of last year to $826,284.
As a result of Hobart’s property market being “very overpriced” in comparison to Tasmanian earnings, Westpac predicted a 6% decrease in 2022 and an 8% decline the following year.
As a result, mid-point home prices in the capital city of Tasmania would fall by 14% or $101,020 by December 2023, to $646,167 from $747,187.
The Reserve Bank of Australia’s interest rate increases since May, according to Westpac Senior Economist Matthew Hassan, have caused property price corrections that are now “well established and firmly entrenched” in New South Wales, Victoria, and Tasmania.
The housing collapse that started at the beginning of the year has escalated and expanded during the past three months, he said, as a result of the RBA raising interest rates rapidly and often.
Due to strong inflation, home borrowers had to contend with rate increases of 1.75 percentage points in May, June, July, and August. This was the biggest rate increase since 1994.
By February of next year, according to Westpac, the cash rate, which is now at a six-year high of 1.85 percent, will have reached a 10-year high of 3.35 percent.
If that forecast comes true, a borrower with an average $600,000 home loan would have to pay $1,060 more in mortgage payments each month than they would have in May, when the cash rate was still a record-low of 0.1%.
Not all cities, however, are seeing a decline as a consequence of rate increases. According to Westpac, Brisbane will have a 2% increase in 2022 before experiencing a 6% decline the following year.
Queensland capital house prices would see a modest decline of $32,258 or a net decline of 4% to return to $750,709 from $782,967 at the end of last year.
Adelaide was predicted to see an 8% growth in 2022, followed by a 6% decline in 2023.
The South Australian capital’s mid-point home price would increase by $9,456 to $631,612 from $622,155 – a net gain of 2% – since the significant gain this year would more than outweigh any loss next year.
Westpac said that the city was “still seeing strong sales and price growth – less sensitive to rate hikes but would be affected.”
Perth was predicted to see a 2% growth in 2022 before experiencing a 4% fall in 2023.
The typical home price will drop by $11,503 to $541,510 from $553,013 due to this net two percent loss, with Westpac highlighting that Western Australia’s capital, which is mining-rich, is still superior value.
It said that affordability was stalled but was less stressed due to a limited supply and the supporting mining industry.
Inflation in Australia increased by 6.1% in the year leading up to June, and the Reserve Bank anticipates it will reach a 32-year high of 7.75% by the end of 2022.