If the supply of homes remains constant and the demand increases, then the prices of homes will increase. In large cities where land availability is often limited, you can see a more pronounced effect of inflation.
In summary, it is clear that interest rate rises only impact a small percentage of property owners, while property prices on the whole rise whenever the rate of inflation increases. If inflation goes up this year or next, so will property prices.
Is high inflation good news for homeowners? Unfortunately, high inflation is rarely a good thing for those with mortgages. If interest rates subsequently rise, this pushes up mortgage rates too. But not everyone will see an instant increase in their monthly repayments.
Low-income households most stressed by inflation
Prior research suggests that inflation hits low-income households hardest for several reasons. They spend more of their income on necessities such as food, gas and rent—categories with greater-than-average inflation rates—leaving few ways to reduce spending .
Australia has recorded its largest decline in property values on record, with values dropping by 7.9 per cent in a year and the median value of dwellings in more than 200 suburbs dipping below $1 million.
There is good news and bad news. The bad news is that the good news is more likely than not bad news. In any event, the good news is that the great Aussie housing crash, which has seen national prices fall about 10 per cent from their peak – the second-largest slump in 43 years – has suddenly stalled.
Australia's Inflation Rate in 2023
Next year should mark the beginning of an interest rate decline, the Treasury expects. In a statement from July, Chalmers said it's expected that inflation will track down to 5.5% by mid-2023, and should fall to 3.5% by the end of 2023.
The latest quarterly inflation figure (to March 2023) is 7.0%, down from a high of 7.8% in the quarter to December 2022.
Inflation is likely to have peaked around the end of 2022 and is forecast to return to the target range over coming years. The central forecast is for CPI inflation to decline to 4¾ per cent over 2023 and to around 3 per cent by mid-2025.
Nationwide prices are expected to rise by approximately 2 per cent by the end of 2023. However, as the RBA potentially cuts interest rates before the end of 2023, demand pressures will contribute to a favourable environment for property prices.
Australian property values experienced a downturn in 2022 and prices continue to fall—but predictions of the overall peak-to-trough price decline tend to vary between 15-25%. Read more about whether the Australian property market is going to crash.
House prices in Australia are extremely high compared to income, relative to other countries. The market is propped up by rules that provide tax deductions for property investment, and by repeated state government bonuses for first home buyers. Furthermore, the supply of new homes is hard to generate.
According to a report by Zillow, home values are projected to increase by 5.5% over the next year, slower than the 16.9% increase seen in 2021. Zillow predicts that home values will increase by 3.5% in 2023, 3.4% in 2024, 3.3% in 2025, and 3.2% in 2026.
Westpac has revised its house price forecasts, with dwelling values expected to stabilise in 2023 (initially forecast a -7% decline). National dwelling values are predicted to rise 5% in 2024, up from 2%.
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.
Katharina Buchholz. Canadian city Toronto was found to have the highest risk of a housing bubble developing in a recent survey released by investment bank UBS. Other cities at a high risk were Frankfurt, Zurich and Munich.
Australia's housing crisis has widened beyond homes being too expensive for first home buyers and young families into a fully blown rental emergency in which only four rental listings – out of 45,895 nationally, by charity Anglicare's count – are affordable to a single person on JobSeeker.
The average annual growth rate for well-located capital city properties is about 7%, which means that Australia's median dwelling price should be around $1.1 million in 2030. But some properties will outperform others by 50-100% in terms of capital growth, so take these house price predictions with a big pinch of salt.
By 2024, the bank is expecting house prices to gain 5 per cent in both Sydney and Melbourne, that prices should rise 6 per cent in Brisbane, by 8 per cent in Perth, and that there should be a 5 per cent gain nationwide.
au's analysis showed that, even if prices rose at a similar rate to inflation over the next five years, the median house price would still be near $1.5m in 2027.
Even the most financially-wise people wince at the thought of inflation eating away at the purchasing power of their savings and investments. Just about everything that we buy goes up in price with time. For example, an item that costs $100 today would cost $134.39 in ten years given a three percent inflation rate.
U.S. Future Inflation Calculator
The buying power of $100 in 2023 is predicted to be equivalent to $106.09 in 2025.