Hidden detail in new property market forecast puts predicted home price falls in perspective
A new property market outlook has tipped home prices will fall by up to 15% over the next 18 months, as rapidly rising interest rates dampen confidence and bite into household budgets.
But would-be homebuyers hoping to soon swoop in and nab a bargain-basement priced piece of real estate will be disappointed by a crucial detail.
Home prices in most major Australian cities have peaked in recent months, and have fallen by 1.5% in Sydney, 1.8% in Melbourne, 0.1% in Brisbane, 0.6% in Darwin, and 0.5% in Canberra.
And while prices haven’t dropped in Hobart, Adelaide, and Perth, the rate of growth there has now slowed.
PropTrack’s latest Property Market Outlook report, released today, predicts that price falls will “broaden and then accelerate” throughout the rest of the year.
“Nationally, we are forecasting prices to fall by between 2% and 5% by the end of this year and then by a further 7% to 10% by the end of 2023,” said Cameron Kusher, executive manager of economic research at PropTrack.
“The recent run-up in prices, coupled with reduced borrowing capacity on the back of sharp interest rate rises, will see home prices drop further – particularly in the more expensive cities.”
On the face of it, the outlook for property markets is a fairly gloomy one. Picture: Getty
But an important detail in the outlook puts that outlook into sharp perspective, he said.
“Property prices nationally increased by 35.1% since the start of the COVID-19 pandemic in March 2020,” he pointed out.
So, even at the highest range of the forecast, the looming market correction will barely wipe off half of those extraordinary price gains.
Even the high end of the forecast would wipe off less than half of the price grains in the past two years. Picture: Getty
Nationally, the median house price is sitting at $765,000 while the median unit price is $575,000. Across the combined capital cities, the median house price is $872,000 and for units it is $600,000.
As of 30 June, the median house price in Sydney is $1.435 million, while in Melbourne it’s $950,000, and in Brisbane it’s $765,000.
Those in the market for a home have much more choice and less competition. Picture: Getty
Mr Kusher said the past six months have seen “significant” change across the Australian market.
“We weren’t expecting the Reserve Bank to start raising interest rates until early 2023, so while there were some signs that house price growth was slowing at the start of the year, their rapid moves have escalated things,” Mr Kusher said.
Three consecutive months of hikes – including two supersized increases – have taken the cash rate from an historic low of 0.1% to 1.35% since May, and he said there are expectations it will be above 2% by the end of 2022.
“We think 2.5% to 3% is the most likely range by the end of the RBA’s current cycle,” he said.
A range of market metrics, from sales volumes to total property listings and the number of potential buyers, highlight slowing real estate sector conditions across the country.
“Sales are trending lower, the number of homes being listed is rising, the number of buyers in the market has fallen in recent months, and properties are spending longer on the market,” he said.
This is good news for those in the market for a home, with the urgency to buy easing significantly throughout the year.
Prospective buyers have much more choice and there is less competition, he said.
“On top of that, as prices fall, some buyers might feel that the longer they wait, the cheaper the home they eventually purchase could be.
“But some buyers who choose to wait could see their borrowing capacity reduce as interest rates go higher, so it could be a catch 22.”
Rates will rise further, which will further weigh on household budgets and consumer confidence. Picture: Getty
Broadly, buyer activity has cooled in recent times and there have been 15.3% fewer sales in the first six months of the year compared to the same period in 2021.
While sales have fallen from their highs of last year, Mr Kusher pointed out they remain above volumes recorded in both 2019 and 2020.
“With more stock for sale and borrowing capacities reducing as mortgage rates rise, we’d expect sales volumes to remain lower than they were a year ago throughout the remainder of 2022.”
Despite market jitters, vendors remain confident in bringing their homes to market, with the number of new listings rising over recent months.
This is giving buyers more choice, but the number of potential purchasers is declining on a year-on-year basis in Sydney, Melbourne, Brisbane, and Adelaide.
This trend is likely to continue throughout the year as rates rise higher and home prices slip.
“However, there would have to be a substantial fall to see these numbers return to pre-pandemic levels,” Mr Kusher said.