House prices in Sydney and Melbourne homes could fall by 20 per cent or more by the end of next year according to NAB’s latest housing forecasts, which have been revised sharply lower as interest rate rises come faster and harder than expected.
After a 25.3 per cent surge in 2021, Sydney prices are expected to fall by 8.8 per cent this year and 13.4 per cent in 2023, according to forecasts in NAB’s residential property survey for the second quarter. In contrast, its first quarter survey, issued before the first lift in the official cash rate in May, had tipped prices to peg steady in Sydney this year before dipping 11.4 per cent next year.
Some homes in Sydney could potentially be worth less than what they were before the pandemic, a point NAB’s chief economist Alan Oster acknowledged before noting that most borrowers were paying off homes faster than the required rate of repayment.
That meant the housing correction was so far playing out as an orderly decline in prices, with NAB’s revised forecasts based on higher interest rates and lower borrowing power.
“What we’re seeing at present doesn’t have a liquidity impact. When we look at our book we don’t see a big hit to people paying more until early next year. But it scares people when they see rates going up and when people are saying they’ve got a lot further to go,” Mr Oster told The Australian Financial Review.
“What we’re seeing at the present is a bit of fear.”
NAB expects Melbourne prices to fall 14.1 per cent next year, while Brisbane and Adelaide will turn sharply negative – by 16.3 per cent and 16.3 per cent respectively – after posting solid gains this year.
Underpinning that forecast is the bank’s expectation that the official cash rate will be running at 2.6 per cent by the end of next year. But financial markets are expecting the cash rate to rise substantially higher than that.
“The good news is I don’t think the market is right,” Mr Oster said.
He expects households will be facing more of a squeeze by next year as borrowing costs rise. On conservative estimate, some borrowers will be paying $300 a month extra on their mortgage repayments by next year.
“That’s a lot. Then there are higher electricity prices, higher fruit and veggie prices et cetera. People get nervous,” Mr Oster said.
In the residential construction sector, rising building costs are expected to put a brake on new housing development. Respondents to the NAB survey rated the costs impediment as “significant” to “very significant” across the states.
Supply chain issues, high raw material prices and labour shortages will all contribute to that escalation. Labour availability was the next biggest hurdle overall, being rated a “significant” disruption nationally, but “very significant” in Western Australia, South Australia, and Queensland.
This article is from Australian Financial Review, please click the following link for the original article: https://www.afr.com/property/residential/houses-could-be-worth-less-than-pre-pandemic-prices-20220630-p5axx4
