House Prices to Fall 10% – And Other Nonsense

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Housing markets generally have recorded extraordinary prices growth this year driven by low-interest rates and rebound demand reflecting the interruptions to activity over recent years.

Sydney and Melbourne have led the charge over 2021, but prices growth – while still strong, has moderated over recent months. Most other capitals however continue to report boomtime results. Sell And Buy Property

Rising affordability barriers and the satisfaction of pent-up demand will continue to act to moderate buyer activity – particularly in Sydney and Melbourne.

Prices growth – although certainly still positive – will be significantly lower over 2022 compared to the remarkable 2021 results.

Recent predictions of 10% home price falls over 2023 based on forecasts of sharp increases in official interest rates are clearly non-sensical.

Since 1987, Australia’s capital city housing market has experienced only three years where home prices have fallen – 2008, 2011, and 2018.

And the price declines were clearly modest, falling by just 4.0%, 4.1%, and 5.1% respectively.

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Higher interest rates were the catalyst for home price declines with official rates increasing from 5.5% to 7.25% between 2006 and 2008 and up from 3.0% to 4.75% between 2009 and 2011.

Price declines over 2018 reflected an APRA enacted bank credit squeeze – particularly directed towards investors, that resulted in higher mortgage rates and restrictive lending conditions

The prospect of similar sustained increases in official interest rates to drive down home prices is currently clearly fanciful.

The RBA has recently yet again stipulated that “Given the latest data and forecasts, the central scenario for the economy continued to be consistent with the cash rate remaining at its current level until 2024”

For wages growth to meet the RBA requirements for a rate rise by November 2022 – the date predicted by those forecasting record price falls in 2023 – would require an unprecedented surge in incomes over the coming months. Houses Property Market

With wages growth still at subdued levels despite the post-lockdown recovery and the jobless rate surging to a 7-month high, the prospect of wages growth quickly returning to the boomtime levels last experienced more than a decade ago are remote – at best.

Particularly with the recent government announcement of a flood of 200,000 migrants set to enter Australia over the short-term providing sharply increased demand for currently available jobs.

And of course, a quick return to high migration levels will again place upward pressure on home prices in our still undersupplied housing markets.

ALSO READ: Here’s why people are predicting a property market crash

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About

Dr Andrew Wilson, Chief Economist of www.MyHousingMarket.com.au is widely regarded as Australia’s leading property economist.


'House Prices to Fall 10% – And Other Nonsense' have 4 comments

    Avatar for Dr. Andrew Wilson

    November 28, 2021 Peter

    Do you not think that aftrer 2 years of no migration an extra 200,000 residents might encourage investors to be more active . People need somewhere to live and 200,000 more customers (in the first year alone ) will likely have some sort of impact on the property market . Prices may stabilize but 1/2-1% rate increase should not have a major impact . If a borower cant afford a 2% increase in interest rates then they should not have borrowed or been given a loan in the first place . If rate rises are gradual the market should be able to digest that .

    Reply

      November 29, 2021 Michael Yardney

      Peter I agree with your comments. Rent will increase as initially these immigrants will not be able to buy a home, and prices will stabilise. We will go into this in much more detail in this week’s property insider video – watch out for it on Wednesday

      Reply

    Avatar for Dr. Andrew Wilson

    November 28, 2021 Ian Bennett

    Michael,
    average house prices between 1989 and 1996 fell by 23%, while in real terms it fell by whopping 40%. Looking at the exposure of people this is more likely. Wages have not risen, debt ratios for families are higher. Ig the interest rates rise to say 7% then there will be a lot of defaults. Therefore the mortgage insurance will start being applied to those that default. Especially as we get more and more COVID lockdowns over the next say 4 years

    Reply

      November 28, 2021 Michael Yardney

      Ian – thanks for your comments, but I’m not sure that you’re right about the falling house prices during the recession of the early 90s – I remember those times pretty well having been in active investor for some time by then. While commercial property values dropped considerably (boy did that affect me!) and high-end properties in Victoria fell in value, overall property values didn’t fall anywhere near as much as you’re suggesting.

      Reply


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