House prices will end the year “roughly flat” before dropping 11 per cent or more in the biggest markets of Sydney and Melbourne next year, according to fresh forecasts from NAB.
NAB’s revised forecast, contained in its quarterly residential survey, comes just two days after Reserve Bank governor Philip Lowe conceded interest rates could start rising later this year, a possibility economists already anticipated.
The markets are pricing in as many as four hikes this year while borrowers are already signing up to fixed-rate mortgages at a higher cost. “In terms of forecasts, we have brought forward the timing of the correction we expect in house prices to late 2022 as affordability constraints begin to bite and rising mortgage rates place downward pressure on prices,” NAB chief economist Alan Oster wrote in the bank’s residential market survey released on Friday.
“This would offset gains seen in early 2022, so that overall, prices end the year roughly flat. We see this trend continuing through 2023, ending the
year around 10 per cent lower.
“We expect this pattern to be evident across the capital cities, though for larger declines to occur in Sydney and Melbourne, while Brisbane and Adelaide see less significant declines.
“However, we do not see these declines as disorderly, with the labour market remaining strong, wages growth picking up and rates still relatively low – though steadily increasing.”
NAB expects house prices in Sydney to end 1.9 per cent higher this year, with Melbourne posting a mere 1.2 per cent gain. Brisbane and Hobart have the best prospects, with forecast gains above 4 per cent this year.
House prices across all state capitals will fall in 2023 on NAB’s view, with Sydney and Melbourne leading the charge lower with drops of 11.4 per cent in both cities.
“With our view on rate hikes coming forward, we now expect the turning point in property prices to occur in the second half of 2022,” Mr Oster wrote.
“We see this as a relatively orderly decline, and it is important to remember this correction comes after a very sharp run-up in prices over the last year.”
The credit-fuelled housing boom added nearly $1000 a day to Sydney house prices which finished the year 29.6 per cent higher. Nationally prices rose 24.5 per cent over 2021.
But that incredible surge was already showing signs of easing even before Dr Lowe stepped up for his annual address to the National Press Club on Wednesday, during which he acknowledged it was plausible rates could begin rising this year.
“If things go well and the economy performs stronger, there are clearly scenarios where we’d increase rates later this year,” Dr Lowe said.
Signs of deceleration were evident in CoreLogic’s January house price data released this week, showing house prices nationally rose 1.1 per cent in January.
But the tempo in the biggest markets is winding back more rapidly, with Sydney adding just 0.6 per cent to home values and Melbourne, 0.2 per cent.
Although house prices typically lag changes in interest rates, the large amounts of debts needed to secure ever more expensive homes could make prices more sensitive to rising credit costs this time around.
The Commonwealth Bank of Australia has also begun tempering its expectations for the house price growth, noting the moderation in monthly gains. CBA has previously forecast a lift in prices of 7 per cent this year, before a fall of 10 per cent in 2023.
“With our revised RBA call of a rate hike in August 2022 (from November) we could see an earlier peak in dwelling prices and a smaller gain this year,” the bank’s economists Belinda Allen and Kristina Clifton wrote this week.
“We have already seen fixed-rate mortgages move higher in recent months as well as the implementation of the higher interest rate serviceability buffer by APRA on 1 November 2021 which both will assist in cooling the market.”
This article is from Australian Financial Review, please click the following link for the original article: https://www.afr.com/property/residential/house-prices-to-fall-11pc-in-sydney-melbourne-in-2023-nab-20220204-p59tu6