One of Australia’s biggest banks predicts property prices will fall around 10 per cent in 2023 as looming interest rate hikes threaten to take the steam out of the market.
Updating its forecast in a Quarterly Property Survey, the National Australian Bank (NAB) said it now expects the housing market to turn a corner soon after rates are hiked by the Reserve Bank.
“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,” writes NAB economists.
“That sees a flatter outcome in 2022 and a slightly larger fall in 2023.
“Overall, we see dwelling prices rising around 3 per cent in 2022 before a decline of around 10 per cent in 2023.”
While it may sound like property bargains on the horizon, NAB economists were careful to point out that any decline comes after what has been the most rapid increase in prices since the 1980s.
“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,” NAB said.
“More broadly we expect the economy to continue seeing healthy outcomes. With above-trend growth this year, we see unemployment drifting lower, boosting wage growth and driving more sustainable inflation.
“This would see the RBA begin normalising rates from November 2022 with a steady series of hikes to come through 2023 and 2024.”
When broken down by capital cities, NAB expects Sydney and Melbourne to drop the most in its 2023 forecast (both down 11.4 per cent), followed by Perth (down 8.1 per cent) and Brisbane (down 6.4 per cent).
When taken as a capital city average, the bank now forecasts Australian dwelling prices – which include both freestanding houses and apartments – to decline by around 9.3 per cent in 2023.
“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,” the economists write.
“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.