The significant increase in Australian property prices seen over the past couple of years looks set to grind in the coming months, and an 8% decline is expected in 2023 as a cost-of-living crisis and higher mortgage rates adversely affects the market.
Australian property prices surged over 20% last year, the biggest annual increase since 1989, making it much harder for first-time buyers to get a foot on housing ladder.
Experts predict that soaring property prices will slow to just 1% this year, according to the average forecast in the latest Reuters poll of 11 Australian property analysts, down sharply from 6.7% forecast in a February poll.
Property prices are forecast to drop 8% next year, more than the 5% expected in the previous survey.
Shane Oliver, chief economist at AMP, expects the average price of a home in Australia to fall 10-15% into 2024.
He commented: “The risk of a crash cannot be ignored, given the high level of household debt and that it’s been more than 11 years since the last rate hike.”
Australia’s central bank in May raised its cash rate for the first time since November 2010, by 25 basis points to 0.35%, and indicated that there are further hikes to come.
“A steep increase in mortgage rates over the coming year will weigh heavily on house prices,” said Adelaide Timbrell, senior economist at ANZ.
“A very large correction in prices would be needed to enable affordable housing, particularly in Sydney and Melbourne, though the wage outlook is key to how much of a correction would be needed,” Timbrell added.
Both ANZ and Knight Frank said average prices would have to fall 40% - roughly the amount U.S. house prices tumbled during the global financial crisis - to make Australian housing affordable.