Bad news for Australian homeowners with warnings that the overheated property market is going to slump significantly sooner than expected.
Record increasing house prices are expected to begin to stall across Australia by May and possibly even drop by December, before a dramatic decrease over the next few years, according to Westpac Bank. The Major bank predicts that overall house prices will rise by as little as 2 percent for the entirety of 2022. It’s a significant drop from the colossal 22 percent increase in property prices in 2021, which is the largest annual growth since 1989.
Westpac has also predicted in its latest report that Australian house prices will begin to decrease by 7 percent in 2023 and an even further 5 percent in 2024.
However, despite these reports, from the three months to February, the Westpac housing Pulse reported that the Australian housing market actually increased by 2.5 percent. Meanwhile, property sold in Melbourne and Sydney is still well above the long-term averages.
Westpac believes that the fear surrounding rising interest rates coupled with increasing inflation is going to have a chilling impact on the housing market.
Matthew Hassan is a senior economist at Westpac, and he has warned that “Housing will be ‘collateral’ damage in the RBA’s effort to keep inflation on target over the medium term.” Mr. Hassan has also highlighted that even though “extremely low levels” of stock still plague the market, the signs of a slow-down are already beginning to show.
“Auction markets softened a touch into year-end and look to have begun in 2022 with a similar tone,” he said. For the week ending February 20, Sydney’s auction activity exceeded 1000 for the first time in 2022. These auctions had a clearance rate of 75.6 percent, which sounds good, but it was actually a dramatic drop from the 83.4 percent success rate at auctions this time last year. Meanwhile, nationally successful auctions are down from 79.6 percent by February last year to 74.6 percent this year.
However, Mr. Hassan added that COVID influences and summer holidays were also making the market very difficult to predict.
Queensland, however, was one state that was expected to buck the trend of decreasing prices in 2022. According to its report, it finished the year “with an extraordinary 10 percent of the dwelling stock changing hands.” Westpac also found that Queensland bucked the major trend of slowing price momentum with a huge 8.5 percent gain.
“Remarkably, annual price growth in Brisbane is now just under 30 percent a year. The detail shows particularly strong gains for houses and ‘top tier properties,” Mr. Hassan said. “Brisbane’s West led initial gains, but outer suburbs such as Ipswich are now driving gains. Regional performances vary widely, the Gold and Sunshine Coasts showing comparable gains to Brisbane but international tourism-dependant Cairns barely eking out double-digit growth.”
Westpac’s previous forecast was that house prices would lift by roughly 8 percent in the first half of 2022, before stalling in the second half of the year. Nationally, Westpac had predicted that House prices were going to drop by 14 percent between 2021 and 2024.
Westpac has further predicted that the Reserve Bank of Australia’s record-low interest rate of 0.1 percent will begin to rise from August. This would not only affect housing affordability, but also the amount of money that people will be able to borrow.
According to CoreLogic, the average Australian property price now sits at around $720,000. However, someone earning an average salary of $90,000, who has a 20 percent deposit would still fall short of lending regulations. A mortgage of $574,000 based on the average property price would still see their debt to income ratio sitting at 6:3. However, the Australian Prudential Regulation Authority considers debt to income ratio of 6 to be a red flag. This would see the borrower struggle to meet the monthly mortgage repayments.