- The revised prediction comes as the RBA continues to tighten monetary policy
- ANZ expects the cash rate to rise to 3.35% by the end of the year
- Regional areas experiencing falls too
RBA) is expected to continue its aggressive monetary policy tightening strategy, following four cash rate hikes with another expected on 6 September.
While much attention has been drawn to the declining Sydney and Melbourne markets, regional areas are expected to join the real estate slide.
Economists at the ANZ expect the RBA to increase the cash rate to 3.35% before the end of the year, which is expected to increase variable mortgage interest rates to near 6%.
“We expect capital city prices to fall 18 per cent over the balance of 2022 and 2023, before a 5 per cent gain in 2024 as mortgage rates fall,” said Felicity Emmett and Adelaide Timbrell, senior economists at ANZ.
Housing price forecasts, by capital city
“Arrears rates are coming from a very low base, households have built up large liquidity buffers, and the rise in the share of loans in negative equity is expected to be modest.”
If the cash rate were to reach 3.35%, borrowing capacity is expected to fall by almost 30%.
“This reduced ability to pay up will drive prices lower over coming months. Already housing finance data show that average new mortgage sizes are beginning to fall.”
Mortgage borrowing capacity under different cash rates
The economists noted a range of macroeconomic factors such as the tight rental market, rising immigration and full employment would mitigate the decline.
Like many other economists recently, it is expected interest rates will start to decline in the second half of 2024, with house prices then to rise by 5%.
Given they are the most expensive cities, Sydney and Melbourne are expected to record the biggest falls of the capital cities, due to the severely reduced maximum home loan sizes that borrowers can take out.
Regional areas not immune
Outside of the capital cities, regional areas are also expected to record a decline.
Corelogic data has shows declines across regional New South Wales, with a 4.5% fall in the Richmond-Tweed region, followed by a 3.5% fall in Illawarra and 3% falls in both Southern Highlands and Shoalhaven respectively.
In Queensland, the Sunshine Coast and the Gold Coast have recorded 2.5% and 1.2% declines over the past three months.
“Typically, markets with a higher median value tend to lead the broader market when shifting through different cycles,” said Kaytlin Ezzy, an economist at CoreLogic.
“After recording some of the strongest value growth throughout the COVID period, each of these areas now have a median house value in excess of $1 million.
“As we move further into the downward phase of the cycle we would expect to see this decline in values to spread into more regional areas.”
The falls come despite a 17% rise in regional house prices over the year to July 2022, compared to a 5.4% increase for the capital cities.
In light of this, Ms Ezzy said she doesn’t expect the decline in the regional markets to be spread out, and may not be as significant as the capital cities.
“It’s possible the regional areas will be slightly more insulated than the capitals, thanks to these markets’ relative affordability and low advertised supply levels,” she explained.
