Home prices tipped to fall another 9% in 2023, economist warns

Australian home values have dropped 8.40 per cent since May 2022 to December 2022, since the property market hit its peak in May last year, according to CoreLogic.

CoreLogic Economist Kaytlin Ezzy said the current downturn has shaved approximately $73,000 off the average Australian house value, compared to a decline of $32,400 in the average national unit value.

"With eight consecutive rate rises reducing the average borrowing capacity by around 13.3 per cent, it's likely a number of prospective buyers can no longer borrow the amount required to purchase a house and are instead looking towards the unit market as a more affordable option," Ms Ezzy said.

"Assuming the November and December rises are passed on in full, the monthly mortgage repayment on a typical unit will have increased by $614, despite the mortgage principle decreasing by approximately $26,000.”

Given the rising rate environment, ANZ economist Shane Oliver expects “Australian home prices are likely to fall another 9 per cent resulting in a top to bottom fall of 15-20 per cent.

He added that prices are “expected to bottom around September” before gains late in the year as the RBA moves toward rate cuts.

“The RBA is less aggressive and less likely to overtighten compared to other major central banks,” Mr Oliver said.

The latest minutes from the Reserve Bank of Australia’s (RBA) December monetary policy meeting indicated that the central bank was open to considering ‘no change’ in the cash rate - a consideration left out from earlier discussions.

The board noted the argument for no change given the “lagged effects of the large policy adjustment to date”, however, the central bank’s most recent forecasts had indicated that “inflation was expected to take several years to return to the target range”.

Mr Oliver said as central banks move to “get off the brakes”, and global inflation begins to ease, the outlook towards the end of 2023 should improve.

Easing inflation pressures, central banks moving to get off the brakes, the anticipation of stronger growth in 2024 and improved valuations should make for better returns in 2023.

“Inflation has likely peaked – this is most evident in the US where inflation led on the way up and is likely now leading on the way down.”

While the risk of a recession appears high, it is “likely to be avoided”, with Australia’s growth expected to slow to around 1.5 per cent this year.

Construction pipeline backlog continues

In addition, natural disasters, material and labour shortages continue to reflect in the pipeline of home building works, Mr Oliver said.

The Australian Bureau of Statistics (ABS) building activity data for the September Quarter 2022 showed that new house commencements continued to decline with a further 4.9 per cent fall.

The data showed there were only 29,153 detached houses completed in the September Quarter 2022 - a 2.5 per cent increase on the same time the previous year.

HIA Senior Economist, Tom Devitt said 104,000 houses are still under construction across Australia, “almost double the pipeline” that existed in mid-2020.

“With interest rates increasing rapidly, affordability constraints will push home buyers back towards more affordable, higher density living, Mr Devitt said.

“This large volume of work under construction at the end of 2022 will ensure elevated demand for skilled trades across the economy."

[Related: Decline in home values breaks records]

Kate Aubrey is the senior content producer of Momentum Media's mortgages titles: The Adviser and Mortgage Business.

Prior to joining Momentum Media, Kate covered regional and breaking news for ABC Radio for more than three years.

She has a Master of Arts in Journalism from the University of Melbourne and a Bachelor of International Business and Business Management from Griffith University.

Email Kate at: This email address is being protected from spambots. You need JavaScript enabled to view it.