Property prices will decrease in Sydney and Melbourne and flatten nationwide this year as increasing interest rates, affordability difficulties and more supply force house prices down through 2022 and beyond.
Economists predict prices to decrease by up to 15 per cent in the next two years as the housing market slows but believe it’s too early to know whether the downward trend in pricing will be long term.
Commonwealth Bank director of economics Gareth Aird said the Melbourne and Sydney property markets were “far from weak”, but there were indications the market was slowing down.
“The amount of loans is remains high. But the shift in lending throughout the month fits in with a housing market that is exhibiting symptoms of cooling, notably in Sydney and Melbourne,” he added.
AMP chief economist Shane Oliver said the combination of poor affordability, increasing mortgage interest rates and consumer worries about growing expenses of living fueled by increased gas prices means Sydney and Melbourne home values have likely peaked.
“After 30 years of dropping interest rates, this perpetual merry-go-round of borrowers being able to pay more and more for homes and borrow more and more as a consequence of lower interest rates may have come to an end,” Mr Oliver said. “Therefore it’s entirely conceivable the 25-year bull market in property is over.”
Mr Oliver believes property prices would decrease 10 to 15 per cent by 2024, putting values back down to April 2020 levels. Mr Aird anticipates costs to decline roughly 8 per cent in 2023.
The Reserve Bank has yet to change the official cash rate from its record low of 0.1 per cent, although experts anticipate the bank will start boosting it from June. Fixed-rate mortgageinterest rates have been growing since November, and NAB and ANZ both boosted fixed rates by 0.4 percentage points on Friday.
Mr Oliver said there has been a substantial surge in fixed rates, which are currently above variable interest rates.
“You go back a year ago, you could get a three-year fixed rate down around 2 per cent. Now that’s 3.7 per cent, on average,” he remarked. “It’s quite a significant spike in fixed mortgage rates and they’re likely to keep going up.”
Owner-occupier home loans have also declined. Home loan commitments dropped in February to $32.3 billion from January’s record high of $33.5 billion, according to figures from the Australian Bureau of Statistics.
Data from Corelogic’s home value index showed the value of homes and flats grew 2.4 per cent in the first quarter of the year, less than half the 5.8 per cent growth in the same time last year.
The dip comes off the tail of the biggest annual gain in property values, which surged over 28 per cent in the 12 months to December according to figures provided earlier this year by the Australian Bureau of Statistics.
After peaking at 9.3 per cent rise in the three months to May 2021, Sydney house prices decreased 0.2 per cent in March, lowering home price growth for the quarter to 0.3 per cent. The median value of residences in Sydney is $1.1 million.
Melbourne house prices declined by 0.1 per cent in the month lowering quarterly growth to 0.1 per cent - significantly behind the record growth rate of 5.8 per cent in the three months to April 2021. The median value of Melbourne houses is presently $805,232.
Nationally, the number of property transactions has also declined, Corelogic’s research director Tim Lawless said. The volume of sales was 14.3 per cent lower in the three months to March 2022 compared to the March 2021 quarter but remained greater than the five-year average.
“Our estimate of sales activity through the March quarter is 39 per cent lower than a year ago in Sydney and 27 per cent lower in Melbourne, whereas stronger areas like Brisbane and Adelaide have experienced a gain in sales over the same period,” Mr Lawless said.
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