ANZ predicts when house prices will fall.

House price growth is said to slow in 2022 and fall in 2023 according to the latest ANZ Bank forecast.

ANZ has forecast housing price growth will slow to 6% in 2022 and dip 4% in 2023.

The bank suggests rising interest rates, prudential regulation, and sheer unaffordability will depress prices.

Despite the RBA continually reminding us that it does not expect to push the cash rate up before 2024, ANZ believes the underlying cash rate will lift in mid-2023.

Even if the overall property market will be 4% in 2023, as ANZ suggests, we know that not all properties will be affected the same – some will hold the values better and others will drop in value more.

But on balance, it makes no sense to wait for the dip in the market when between now and then property values will increase significantly.

According to ANZ economists Felicity Emmett and Adelaide Timbrell who co-authored the ‘Australia’s Housing Rolling Over’ report:

“If our forecasts pan out, housing will be 27 per cent more expensive at the end of 2023 than at the end of 2019.

What will cause the fall in property values?

ANZ says “interest rates will be key” in determining exactly when prices would fall away.

The official cash rate is currently at 0.1 per cent and ANZ expects the RBA to “hold” this until the first half of 2023, despite the RBA insisting it will only lift the rate once inflation sustainably hits its 2% to 3% target band, with that inflation driven by wage growth of at least 3%.

The latest official labour market data clearly contradicts recent reports of an early and robust post-lockdown revival in the economy.

The ABS has revealed that the national unemployment rate seasonally adjusted increased sharply over October – rising from 4.6% to 5.2% and the highest monthly result since April and “real” wages growth, when taking in into account inflation, has been dismal.

Will interest rates really crash the market?

History shows that interest rates do not force property markets into booms or busts, rather it’s often affordability, local economic conditions, consumer sentiment, or access to lending that does, according to new research by the Property Investment Professionals of Australia (PIPA). 

PIPA analysis of five periods of increasing cash rate movements since 1994 has shown that house prices continued to rise – sometimes significantly – even after rate rises of up 2.75 percentage points over just six months.

Cash Rate Rises and House Price Movements 

PIPA Chairman Peter Koulizos said while the strength or weakness of property markets often had more to do with local economic conditions, including affordability considerations, the data shows that rate adjustments are never the sole underlying reason.

“There has been much conjecture over the past 18 months that record low interest rates are the singular reason why property prices have skyrocketed, when the cash rate was already at a former record low of 0.75 per cent before the pandemic hit,” he said.

There are clearly a number of factors at play, including some buyer hysteria I’m afraid to say, but one of the main reasons for our booming market conditions is easier access to credit, which was simply not the case two years ago when rates were also low.

At the end of the day, even when interest rates are low, as they have been for years now, if people don’t have access to finance, it really doesn’t matter what the cash rate is.”

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