If you’re keeping up with the financial media you couldn’t miss the forecasts of ‘property prices falling ahead’.
And it’s no longer only the perpetual property pessimist, you know…those who have been getting it wrong time after time – that are suggesting this. 
It’s now some of the regular media commentators and the bank economists.
Of course, they don’t all agree.
Some are suggesting that prices will fall modestly as the cycle slows down, some think the falls will happen next year while others believe they will occur in 2023 after another strong year of property price growth in 2022.
The ANZ bank is forecasting modest price falls of 4% in 2023, while the CBA are suggesting prices could fall up to 10% in 2023
So are they right?
Is it too late to buy in the current property cycle? Should we worry that the value of our home will plummet?
These are some of the questions I’ll be asking Dr. Andrew Wilson, Australia’s leading housing market economist and Chief economist of My Housing Market in this week’s Property Insiders chat.
House Prices to Fall 10% – And Other Nonsense
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.
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.
The last time the RBA raised rates (November 2010) wages were increased by nearly 4% annually.
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.
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.
Another weekend of strong auction results.
The late Spring flood of properties for sale by auction is predictably continuing to push clearance rates down in all capital cities, although generally, the results still remain in favour of sellers.
The national clearance rate fell to a three-month low with only Canberra reporting results above 80% over the weekend.
Watch this week’s Property Insider video as we discuss how most cities continue to record generally strong results for sellers.
Sydney Auction Market
Sydney clearance rates rise despite another record November auction day.
Clearance rates bounced back in Sydney at the weekend despite a continuing record flood of end-of-year auctions.
Sydney recorded a clearance rate of 77.2% of the weekend which was higher than the previous weekend’s 76.3%, but lower than the 80.8% recorded over the same weekend last year.
A record 1234 homes were listed for auction on Saturday which was well of the head of the previous weekend 1075 and significantly higher than the 781 auctioned over the same weekend last year.
The clearance rate for houses was 78.3%, with units lower at 74.4%
Melbourne Auction Market.
New record-breaking listings push clearance rates down again.
Melbourne’s weekend auction market concluded November with a new record number of listings.
The recent surge in auction numbers has predictably acted to put downward pressure on clearance rates that nonetheless continue to favour sellers.
Melbourne reported a clearance rate of 69.8% on Saturday which was lower than the previous week and 72.5% and also lower than the 75.6% recorded over the same weekend last year.
The clearance rate for houses was 70.3%, with units lower at 67.3%.
READ MORE: Interest rates and inflation: where are they heading?
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'House prices will fall 10% – what nonsense! | Property Insiders [Video]' have 28 comments
October 6, 2021 Karen
Mortgage insurance concerns me as it doesn’t only cover the banks and the borrower still has to pay the loan back? I see my kids now as very vulnerable!
October 6, 2021 Michael Yardney
You are right, the banks are covered by mortgage insurance and the borrower is responsible for their debts.
Having said that people should develop good money management skills and not borrow more than they can afford to repay.
It’s unlikely the interest rates will go up for a while and hopefully your kids will not be vulnerable
September 29, 2021 Karon Cumner
In all this covid mess its been reassuring that the property market has done well. People who own property make sacrifices to get into the market. I appreciate this blog for good solid information thank you.
September 29, 2021 Michael Yardney
Thanks Karon – you’re right become financially free doesn’t just happen – you need to work for it and make sacrifices
September 15, 2021 Errol
Are we still this optimistic about Australia and its future ?
Australia has changed a lot since this blog post was submitted.
Under “normal” circumstances, I would say “yes, Australia will bounce hardly”
But we most likely won’t be under “normal” circumstances for the mid to possibly very long term anymore.
I come from a communist country, and I lived the transitional period from full democracy to becoming a tyrannical regime.
There are many strategical similarities to what’s happening in Australia, but with different colors.
If we keep this path, we won’t be ok, things will change forever
“Profits” from real estate will become irrelevant when there are no freedoms.
Even if you get “vaccinated”
September 15, 2021 Michael Yardney
This blog is updated every week Errol – and yes, we’re still optimistic
June 2, 2021 Mike Schwarz
Dr Andrew Wilson – Question on Interest Rates
It is said that the banks have been receiving cheap funding from the reserve and this ends in June. They will then need to source funding on the global market which is markedly higher. This would suggest they will have no option but to raise interest rates.
Had you factored this into your view on interest rates?
June 2, 2021 Michael Yardney
Great question Mike. I know Dr Wilson has taken this into account from our private discussions. The banks will have to borrow overseas, but look what interest rates are overseas. Of course the value of the Australian dollar will be a factor.
Remember, the RBA is keen to keep interest rates low to stimulate the economy, increase business activity and jobs growth and eventually get unemployment down. They are not not going to pull the rug out from under us
April 25, 2021 Mark
Its interesting to watch the FOMO effect on purchasing real estate at higher prices than they are worth as real estates are elevating prices during the demand. I also recently read an account of a person at auction in Sydney saying I felt like I had won lotto just because he secured the winning bid !
Now the prices are rising so quickly and people are borrowing way to much to purchase at historically low interest rates its not difficult to work out what happens next when interest rates rise again !
See household debt in Australia
https://www.finder.com.au/australias-personal-debt-reported-as-highest-in-the-world
Another concern is the misdemeanor of good debt and bad debt lets face it all debt is bad but it portrays a certain air of its ok because its good debt .. but good debt can turn bad too ie negative equity
We see the occurrence every decade or so the debt delinquency increases this last happened when interest rates were increased
I have been in a position where I have not only seen this occur but almost been burnt too .. not a good feeling but you learn by your mistakes very quickly
The oracle Buffet says be fearful when others are greedy and greedy when others are fearful
I am standing back and waiting for this supposed pandemic mayhem to cease ….
April 25, 2021 Michael Yardney
What you say is correct – some people are making poor decisions driven my FOMO – but that doesn’t mean it’s the wrong time to make a wise investment decision
August 18, 2021 Bruce Mitchell
Hi Michael,
I don’t feel the question was answered, what’s GOING TO happen, up, down, you hint it’s not, but I agree with one of your comments above.
Interest rates are going higher, people have overspent and it’s gonna crash soon.
I’ve been wrong till now and hope I continue to be,
Tho it’s a time bomb waiting g and it’s gonna be bad but with opportunities opened.
You and all real estate keep talking it up, that’s your job, I just don’t agree.
Cheers
August 18, 2021 Michael Yardney
Bruce, with so many unknowns what’s going to happen in the short-term is very hard to forecast, but I tend to avoid forecasts and have expectations instead.
I expect we will have some difficult times and some good times, but I don’t know when they will occur.
I expect we will learn to live with the coronavirus, but I don’t know how long it will take, and I expect the underlying fundamentals will keep driving up our property markets, not because I’m in eternal optimist it because I’m a realist and I don’t fight the big trends.
April 2, 2021 Mary
@Joseph
Your comment about “Australia heading towards Japan” and being over 1T in debt
Have you seen this link lately?
https://www.usdebtclock.org/world-debt-clock.html
Australia is doing AMAZINGLY WELL compared to the rest of the world.
I suggest to try removing the lens of pessimism and looking at life in general with a more realistic and optimistic outlook
People are angry when prices go down
People are angry when prices go up
Can’t seem to win either way eh?
April 2, 2021 Michael Yardney
Well said
March 3, 2021 Jennifer
90% of jobs recovered? I I don t think so. The tourism and travel sectors have been decimated and the education sector is not far behind. It s a shame that 9-5ers forget that these sectors even exist. I personally have been getting by on menial casual jobs for over a year and it looks like that will continue for most of this year as borders remain closed. Some of us have had our lives turned upside down for the foreseeable future, so No, it is not back to normal. I m lucky as I had some money and a mortgage already but I can t even go to the bank to access a better rate through refinancing as I don t tick a single box right now. And I work for a very reputable company normally – stood down definitely through no fault of theirs or mine. Not all of us are back to normal!
March 3, 2021 Michael Yardney
We quoted the Australian Bureau of Statistics latest figures. Of course for the many people like you who are still without a permanent job and the situation is terrible and we are not wanting to belittle that.
February 4, 2021 Raj Thakrar
Hi Michael,
It is too early to be generalist and say property prices will hike. There are number of factors in play here.
1 Due to lock down some sales were on hold
2 Government Incentive in play
3 Relaxed lending rule
4 Government incentive
Cost of new build artificially inflated by builders and developers sending cost of new build to new level making house price higher. The buyers technically are not benefiting for these Government incentives they are going in to builder and developers pocket. Housing in Australia is still young growing market so bubble will burst scenario does to stack up. It is always demand and supply simple economics.
February 4, 2021 Michael Yardney
Raj
The facts show property values are already increasing and have for 4 months. Yes this is driven by pent up demand.
Can they keep increasing? you may benefit from reading this: Property prices cannot keep rising at the same rate
December 10, 2020 Philip Lee
The property market didn’t collapse because the government is throwing everything at it to keep it afloat. Our property market is not a free market driven by market fundamentals. It is manipulated by the government cutting interest rates to zeo, stamp duty concessions plus first home buyer grants, and government guarantees for deposits all sucking in the financially unsophisticated into putting themselves into a life of mortgage stress. It’s just kicking the can down the road.
December 10, 2020 Michael Yardney
Philip. You are correct, our property markets have never been a “free market”, they have been manipulated by the Reserve Bank and APRA. Remember a couple of years ago when investors were dominating the market pushing up prices, the RBA raised interest rates and APRA made it much harder for banks to lend to investors and this slowed down the markets.
Currently intervention has supported our markets and that’s good. It’s the government’s job to protect its constituents – you and me and one way of doing that is providing stability to our housing market. They are too big to fail and no one will let them fail.
October 16, 2020 Joseph Battaglia
Michael your optimistic views irrespective of the true underlying data is disconcerting.
The government is covering up the reality of the situation, throwing money against the wall at all costs (hoping some will stick) and falsely propping up the economy whilst kicking the can down the road. The rhetoric from parties with bias/interest in the real estate market are also contributing to the propaganda that “things are ok and sentiment is up” – whilst reality is different.
We are not leaders on the world stage, for our real property obsession, in fact we are almost ridiculed that we are a nation that increases their wealth through selling properties to each other increasing the price at each transaction.
Its fiscally clear, we should allow the reset button to deflate this overvalued bubble and get back to reality. I mean seriously, some of these prices are ridiculous!
Are we going the way of Japan?
This QE is just irresponsible on all counts.
Over $1T in debt for such a small economy… come on, who are we kidding.
October 16, 2020 Michael Yardney
You are right Joseph, many of our industries are on life support from the government at the moment. And while the property market was being supported by loan deferrals, they seem to be cleaning themselves up nicely. What is the alternative? Do you really want to see businesses go broke and people go hungry? Our government and those around the world have learned how to handle economic downturns. And spending our way out of a downturn is a valid economic argument
October 2, 2020 Dave
Dear Michael. Your articles are interesting
and usually very well written . However this one is full of a lot of spelling and sentence construction mistakes that in parts make it hard
to follow . Take a look at where it says sh-t (Let me know if you need a proof reader ) 😉
October 2, 2020 Michael Yardney
Thanks for the heads up Dave – you are right lots of errors in this one. As I can talk faster than I can type I usually use voice to text, and it is pretty accurate. But clearly I missed a couple of bad bloopers this time.
July 24, 2020 Martin
The RBA will print money. And has printed plenty of it already to fight covid-19. It just doesn’t give the money directly to the government. It prints new money and uses it to buy government bonds on the secondary market so that institutions can take a cut as they buy the newly issued bonds from the government So that the government can pay for jobkeeper and Then these institutions onsell them to the RBA for a markup.
July 25, 2020 Michael Yardney
There has been a lot of discussion recently about Modern Monetary Theory, which suggests central banks should print more money and then give (lend) it to the government, to help pay for it debts.
This week RBA governor Philip Lowe said that he won’t do that (print extra money) instead the banks should borrow on the open market at the prevailing low interest rates because they can afford it.
Rather than print more money he gave the Morrison government the green light to increase debt levels and lock in a larger budget deficit to support the economy during its recovery from the virus crisis
June 26, 2020 Alex P.
While Dr Wilson may say that more sellers entering the market is an expression of confidence, the flip side is that it may be the smart money taking the opportunity to exit while prices are still holding up. If you drill down in the data is there a way to differentiate whether these are investment properties or owner occupied properties being sold and how does that relate to historical data. Second point is that government intervention has done a good job of addressing short term liquidity over the crisis but there have been no measures on a similar scale to address solvency, and solvency is what really matters after the liquidity tap has been turned off.
June 26, 2020 Michael Yardney
Alex, you are right on both counts.
Our experience on the ground speaking to buyers, sellers and estate agents, is that there are very few distressed properties coming on the market at present.
Similarly we do not believe the government is going to pull the rug out from under us in September after he’s gone to such an effort to support the economy and our markets