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Will Property Prices in Australia Drop In 2023?

Dec 9, 2022 | Finance, Property Investing, Purchasing Property

It’s no secret the Australian property markets have been on a bit of an up and down journey over the last few years. Prices have soared to new heights before coming tumbling back down again. Where does the property industry go next year? Will prices keep falling, or will they start rising again?

These are common questions people are asking now that the housing markets have transitioned from the once-in-a-generation property boom experienced in 2020-21 to the adjustment phase of the property cycle that could be best described as multi-speed.

Australia’s property market is experiencing some ups and downs, all parts of the country are affected by these changes.

What is the current state of the Australian property market?

Each State is at its own stage of the property cycle and within each capital city there are multiple markets with property values falling in some locations, stagnant in others and there are even a few locations where housing values are still rising.

CoreLogic says property prices fell 1 per cent in November and 3.2 per cent from a year ago.

National house prices have fallen in November but the pace of decline has slowed as low stock levels persist and buyers push ahead with purchasing despite rising interest rates.  

Property data firm CoreLogic said home values across the country fell a further 1 per cent in November from a month earlier, with the median home price now at $714,475. 

Brisbane and Hobart led the falls (-2 per cent), followed by Sydney (-1.3 per cent), Canberra (-1.2 per cent), Melbourne (-0.8 per cent) and Adelaide (-0.3 per cent).

Perth was flat, while Darwin values rose 0.2 per cent.

We’ve moved into this next stage of the property cycle faster than some expected, pulled forward by an earlier and more aggressive interest rate tightening cycle due to the RBA’s response to a surprisingly strong surge in inflation.

While much of this is due to offshore factors that can be expected to ease over time, the high starting point for inflation and tight labour market domestically means the RBA is moving aggressively on interest rates – taking them from COVID ’emergency’ lows to more ‘normal’ levels.

And this has caused many commentators to warn that we are going to have a housing market crash.

What do the RBA and the major banks say?

The Reserve Bank of Australia

According to internal RBA documents released under a Freedom of Information request, house prices could drop by 20% in the next two years.

“This is roughly twice as large as what we’ve assumed in our baseline,” RBA notes prepared ahead of an August policy meeting revealed.

The RBA expects national house prices to drop by 11% by the end of 2023, according to the internal documents.

CommBank

CommBank says the sharp increase in interest rates and a reduction in borrowing power have contributed to declining house prices. The rapid pace of RBA tightening has had an almost immediate impact on the demand for credit and by extension home prices and is not anticipated to change in the near term as the RBA continues to raise the cash rate.

Their central scenario is seeing home prices fall 15% from their April peak. This means that we expect a further fall in home prices of 9%. And we expect the trough to be achieved in mid-2023.

NAB

NAB Economists say higher rates are expected to impact all regions, but particularly those where affordability constraints are most binding.

NAB forecast for prices is broadly unchanged and see a further 13% reduction in house prices from now, taking the total decline from April this year to around 20%.

The two capital cities most bound by affordability constraints – Sydney and Melbourne – have fallen the most. However, strong economic conditions have likely mitigated some of the impact as employment growth has been strong, wage growth is picking up and employment is low.

NAB’s forecast is based on an expected peak in the official cash rate of 3.60% by March 2023.

Westpac

Westpac’s economists says while October’s home value data has stabilised compared to August and September, it doesn’t mean further declines are off the cards yet. 

Overall, the moderating pace of monthly price declines is somewhat promising but should be kept in perspective. In annualised terms, declines have moderated from a –16% pace in Q3 to a still formidable –12.8% pace in Oct. With more RBA hikes on the way, stabilisation still looks a long way off.

Westpac economists predict a peak to trough decline in the order of 16%. 

ANZ

According to ANZ’s most recent housing report, capital city property prices are set to fall 18% over the balance of 2022-23, before climbing by a modest 5% in late 2024. 

ANZ economists say the steep increases in mortgage rates between May and end-2022 along with reduced borrowing capacity are the main drivers for declining property prices.

Should I buy a property now or wait until 2023 or 2024?

For some, 2023 will absolutely be the worst possible time to consider buying a property.

There is the spectre of higher interest rates, the continual media coverage predicting falling property values, and geopolitical tensions around the world.

In fact for some, moving forward with a real estate purchase this year would have the potential to cripple them financially, not just now but well into the future.

But the reality is that for investors, there is no ‘best’ or ‘worst’ time to buy property.

Why is that?

Property investment is a process, not just an event.

So rather than just talking about going out and buying a property in 2023, or how to time the market to best purchase a property, the right time for you to consider investing is when you have all your ducks in a row and it suits your finances and your long term plans.

This means you have:

  • A strategic property plan, so you know where you’re heading and what you need to do to achieve your financial goals,
  • Set up the right ownership structures to protect your assets and legally minimise your tax, 
  • A robust finance strategy with a rainy day buffer in place to buy you time

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