Off the back of the RBA's most rapid tightening cycle in more than 25 years, house prices are expected to continue on a downward trajectory, already falling by 6.6% from their April peak according to CoreLogic data.
Coolabah analysis shows Australian house prices will fall further in 2023 with a historic drop in sight: Christopher Joye.
Australian house prices are falling at record-breaking levels, posting a decline of -8.4% between May of last year and January 2023, according to fresh CoreLogic data. The downturn surpasses the previous record when home values fell -8.38% between October 2017 and June 2019.
Figures show that house prices are starting to fall. This decline is expected to continue in 2023. There are a number of reasons for this: Interest rates have increased from their record lows since the end of 2021, making mortgages more expensive and reducing demand in the housing market.
Is Buying A Home During A Recession Worth It? In general, buying a home during a recession will get you a better deal. The number of foreclosures or owners who have to sell to stay afloat increases, typically leading to more homes available on the market and lower home prices.
Various forecasts predict house prices will drop around 5%-10% in 2023, however assuming interest rates peak then ease from mid-2024, Savills' house price forecast is that house values will start to recover and that the average UK house price will rise by 6% over the next five years.
Key points. A new report ranks global property markets as fair valued, overvalued or in bubble risk territory. Sydney property prices are overvalued despite recent price falls, the report found. Experts warn prices will not necessarily fall back to levels that would be fair value.
The drop in demand from first-timers in the property market means there's less competition right now. This coincides with falling property prices. The Domain End of Year Wrap 2022 shows house prices nationally have fallen 4.9 per cent from the March 2022 price peak, down about $53,000.
If you look more closely at the results of the survey, they show that the median multiple of house prices to income for major cities is 7.7 times in Australia compared to 4.8 times in the UK and 4.2 times in the US. In Sydney, it is 11.8 times and in Melbourne, it is 9.7 times.
Our other experts agree: The slowdown in home sales that beset the second half of 2022 will continue into 2023. Sharga believes the number of sales will continue to slow, likely hovering in the 4.5 million range, with new-home sales at around 600,000. Listings may no longer go at a lightning-fast pace, either.
Estimates suggest the average Sydney home will be close to $1.8 million, up from $1.6 million. Apartments will also break the price ceiling up from an average of $780,000 to an inconsolable $1.26 million.
House price predictions for 2023/2024
Estate agents Savills expects the base rate to rise to 4% in early 2023 and remain there until mid-2024 before starting to fall back. Capital Economics predicts the base rate to rise to 5% next year before dropping to 3.25% in 2024.
Generally speaking, in Australia you're likely to find the cheapest houses in regional and rural locations, especially in Western Australia, Queensland and South Australia.
The likelihood that Australian capital city housing, particularly in cities such as Sydney, will continue to grow at the same rate as the past 25 or 50 years is extremely low. A doubling every 7 years represented 10% p.a. growth, every 10 years represented 7% growth. That was the Australian miracle of the past.
The worst slump in the overall Australian property market was after the credit squeeze on 2016-17 and when there were concerns around proposed changes to negative gearing before the 2019 election. And at that time the peak to trough drop between December 2017 and June 2019 was 9.9%.
According to ANZ's latest housing report, capital city property prices are set to fall 18% over the balance of 2022-23, before climbing by a modest 5% in late 2024. While Sydney and Melbourne are expected to bear the brunt of falls, the report noted all capital cities, including regional areas would be impacted.
Australian housing prices were down 5.3 per cent over 2022, marking the first time housing values have fallen over the calendar year since 2018.
Research from the Swinburne University of Technology suggests that the cheapest time to buy a house in Australia is during, just before or just after winter. In Sydney, Adelaide and Darwin the least expensive month to buy was June or July, suggesting that if you buy during winter you may find yourself a bargain.
The IMF warned that developed housing markets around the world, including in Australia, could be headed for a correction after the unprecedented gains of 2021, with signs already on the way of values declining. This could bring the possibility of a “bust”, where the housing market might crash.
We Expect an Earnings Recession in 2023
Our base case for 2023 is that Australia is likely to experience an earnings recession even if we do not suffer an economic recession. The reality is that the starting point for earnings is at a historically very high level.
So why is the cost-of-living in Australia so high? One of the major reasons is inflation. A measure for household inflation, the Consumer Price Index, or CPI, increased by 2.1% in the first quarter of this year and 5.1% annually, according to data compiled by the Australian Bureau of Statistics (ABS).
Mainstream: Having risen by 24% since March 2020, average UK house prices to fall -10% in 2023, as Bank base rate is forecast to rise to 4.0% Growth to resume in 2024, totalling 18% from 2024-2027 as affordability pressures gradually ease (net +6% over 5 years)
Historically, rising mortgage rates don't always lead to lower home prices. Rising interest rates tend to cause increases in home values to shrink. However, given that interest rates rose so quickly in 2022, it might still force home prices to come down further in 2023.
Historically, house prices tend to fall when there is a deep and prolonged contraction in the economy with rising unemployment.
Most affordable suburbs in 2022
Kambalda East in Western Australia was named the most affordable suburb for houses, with a median value of $118,525. For units, the most affordable suburb was Laguna Quays in Queensland, with a median value of just $72,076.