Could property prices be about to drop 14%?
Economists at one of Australia's major banks have predicted a huge drop in property prices before the end of 2024.
Dwelling prices in Australia could drop by 14% before the end of 2024, according to Westpac economists.
The major bank expects property prices to post a net gain of 2% over 2022, before falling 7% in 2023 and a further 5% in 2024.
This comes after Westpac re-evaluated its position on when the Reserve Bank of Australia (RBA) would raise interest rates.
Predicting that the RBA will now first increase rates in August 2022, Westpac economists say rates will continue to a peak until they hit 1.75% in March 2024. This shift means that the foreseen 'correction phase' of the housing market will extend into 2024.
Surging house prices have led to poor affordability, which means any interest rate rises are going to squeeze borrower capacity even further.
"The high current household debt to income ratio will make prices more sensitive to rising rates than in previous cycles," says Westpac's report.
It is worth noting that back in May 2020, Westpac had predicted a 32% drop in house prices. In fact, according to CoreLogic figures the national dwelling price average actually rose by over 10% in the 12 months from May 2020.
What are Westpac economists predicting?
2022 – Prices to lift by around 4% up until May, when they would flatten. Prices will drop by 2% in November to December following RBA rate increase.
2023 – Rates will rise by 1%, causing dwelling prices to drop by a further 7%.
2024 – Amongst weak economic growth, rising unemployment, and slow wage growth, the last rate hike will occur in the March 2024 quarter. Dwelling prices will fall another 5%.
Where are the biggest price drops predicted?
Prices in markets with more stretched affordability will be more sensitive to the interest rate rises.
Sydney, Melbourne and Hobart are expected to see earlier and more pronounced price corrections, while Brisbane and Adelaide are expected to see a milder price cycle.