Price growth is expected to slow to eight percent in 2022
According to 9News, an Australian top economist forecasted that Australia’s property prices could drop by as much as five percent if interest rates were to be raised.
Bill Evans, chief economist at Westpac has predicted that the current red-hot property market will enter a “correction phase” in 2023, in line with the rise in interest rates by the Reserve Bank of Australia.
“As for 2022, the strong momentum will continue but the pace of gains is expected to slow, levelling out over the course of next year before moving into a correction phase in 2023,” Evans predicts.
“We expect price growth to slow to eight percent in 2022, up from our previous forecast of five percent, with most of that increase loaded into the first half of the year.
“We stick with our previous views that markets will move into the first year of a correction phase in 2023 as official interest rates rise, with prices forecast to retrace by five percent.”
Australia’s current cash rate is at 0.1 percent, and the RBA says it wouldn’t raise rates until there was a significant increase in inflation.
A major factor that could change his forecast was property affordability, in which regulators might have to intervene soon.
“The wild cards are around investor activity and potential impacts from an extended period of slow population growth,” Evans said.
“But for now, the market has weathered the latest COVID-19 disruptions very well and price momentum has held, prompting us to revise up the near-term outlook for prices before a correction phase begins in 2023 and likely extends into 2024.”
According to property data firm CoreLogic, the total value of Australia’s residential real estate is now worth AUD9.1 trillion (USD6.8 trillion) – almost a third larger than all superannuation, the ASX and commercial real estate combined.
Moreover, housing values have surged rapidly, the fastest annual pace since June 1989 and a 17.6 percent increase over the first nine months of 2021.
Tim Lawless, research director at CoreLogic, said, “With housing values rising substantially faster than household incomes, raising a deposit has become more challenging for most cohorts of the market, especially first home buyers.”
“Sydney is a prime example where the median house value is now just over AUD1.3 million.
“In order to raise a 20 percent deposit, the typical Sydney house buyer would need around AUD262,300. Existing home owners looking to upgrade, downsize or move home may be less impacted as they have had the benefit of equity that has accrued as housing values surged,” Lawless added.
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