Real estate price falls could be bigger than expected

In Melbourne, house prices fell 1.3% in June, after a modest 0.8% decline in May.

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Before the latest official rate hike, some analysts predicted a 15 to 20 percent drop in real estate prices in the two major capitals.

ANZ’s latest forecast for Sydney prices, published in mid-June, was for a drop to 20 percent by the end of 2023. In May, the bank forecast a drop of just 15 percent.

The bank’s economists expect prices in Melbourne to fall by 15 percent. In May, the estimate was only 11 percent.

The Commonwealth Bank predicts that house prices in both Sydney and Melbourne will fall by as much as 18 percent by the end of next year.

Shane Oliver, chief economist at AMP, says Sydney and Melbourne are already seeing “sharp declines” in property prices, with other capitals likely to follow, after a delay of up to six months.

“The outlook for the housing market is increasingly downwards.”

Tim Lawless, Research Director at CoreLogic

He has raised his forecast for the peak in cash interest rates from 2 percent to 2.5 percent.

Oliver predicts a drop in property prices in Sydney, Melbourne and Canberra of up to 20 percent over the next 12 months, with smaller declines in other capitals.

Tim Lawless, research director at CoreLogic, says that given that inflation is likely to remain stubbornly high for some time to come — and interest rates will rise significantly in response — it’s likely that the “rate of home value decline will pick up steam.” keep coming and spreading widely”.

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“The outlook for the Australian housing market is increasingly downward, with the trajectory of house prices heavily dependent on the path interest rates take,” he says.

Lawless points out that unit prices are not falling as fast as house prices.

However, there is also a positive side to the gloomy forecasts. Even a 20 percent drop in home values ​​would bring the national index back to January 2021 levels.

Also, many borrowers have buffers against rising mortgage rates because they have made repayments above the minimum required, Lawless says.

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Craig James, chief economist at CommSec, says a strong job market would help fundamentally support housing demand and could put a floor in house prices.

However, more financial pain is on the way in the form of high mortgage payments as the central bank struggles to contain rising inflation.

The Reserve Bank now expects inflation to peak at 7 percent by the end of this year, down from 5.1 percent in the March quarter.

In an RBA statement accompanying Tuesday’s cash rate hike, central bank governor Philip Lowe said: [RBA] The board expects to take further steps in the process of normalizing monetary conditions in Australia in the coming months.”

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