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ANZ predicts 20% property price crash – but don’t panic, say experts

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In ANZ's latest housing report, the bank's economists predict property prices will fall almost 20% by the end of 2023.

We dive into the details to work out how likely it is that this will actually happen – and if it does, what does that mean for you?

What are ANZ's housing crash predictions exactly?

The media has jumped on the "almost 20% price crash" prediction with gusto, but it's not quite accurate.

Officially, ANZ believes capital city prices will drop by 18% in 2023, before climbing 5% in 2024.

On paper, this means a home worth $1 million today would drop in value to $820,000 by Christmas next year, before rising 5% to $861,000.

Therefore, around 2 years from now towards the end of 2024, home values on average will be around 14% lower than they are today. Not brilliant – but not as alarming as a 20% slump, either.

How likely are these predictions to come true?

ANZ believes property values will crash because higher interest rates will decrease the average Aussie's borrowing capacity, and some prospective purchasers will hold off borrowing.

Picture not describedProperty expert Michael Yardney, CEO of Metropole Property Strategists, says that while both these points are correct, neither will necessarily lead to decreased property prices.

"Property prices could crash if sellers must sell their property and there's nobody there to buy their property. However, currently there are very few forced sellers," he explained.

"Yes, potential buyers will have their borrowing capacity diminished. But all this means is that they will buy in a cheaper adjoining suburb or buy a townhouse, villa, unit or apartment, rather than the home in their desired location."

Just because your borrowing capacity has decreased, that doesn't mean a vendor will lower their asking price to match, he added; instead they may "just wait for a buyer with the right budget to come along, rather than drop their price."

In other words: rising interest rates might make housing less affordable, but it's not guaranteed to trigger a mass sell-off and subsequent price crash.

How accurate are bank price forecasts overall?

Banks make forecasts and predictions all the time – here's a quick look at some Big Four banks from the last couple of years:

  • February 2022: Westpac predicted Aussie house prices would grow 2% in 2022. Australia's median property value is down 2% since the beginning of May.
  • February 2021: 12 months earlier, Westpac predicted house prices would increase 10% in 2021. They increased by 20%!
  • November 2021: CBA predicted the cash rate would be 1.25% by the end of 2023. It's already at 1.85%.
  • February 2022: ANZ predicted property prices would fall 6% in 2023. It has now upped this to 18%.

Sometimes they're bang on the money, but as the above list shows, sometimes they couldn't get it more wrong if they tried.

This is largely because the economy is a dynamic, ever-changing beast – and if just one input changes, the expected outcome can drastically shift.

What impact would a big price crash have?

If ANZ is on the money and house prices do substantially fall, what does that mean for you?

Firstly: remember that you only suffer a financial loss if you actually sell. If you're in a position to stay in your home the next few years (i.e. rising rates don't force you to sell), you'll be able to weather this storm without much impact.

This is because all of these changing values are just "on paper". Since the beginning of 2020, I tracked my own home's value, based on comparable sales and market data. It has moved as follows:

  • March 2020 – $900,000
  • June 2020 – $800,000
  • September 2021 – $1.2 million
  • December 2021 – $1.4 million
  • June 2022 – $1.2 million

Today? Or next year? It could fall below $1 million. Who knows. I'm not worried, because I'm not planning to sell any time soon.

If you're in the same position and you don't plan to sell any time soon, then you're in a good position too.

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James Bowe, co-founder of Aussie proptech OwnHome, says we're currently experiencing "one of the many property downturns we've seen over the last century", which is all a normal part of a property cycle or property clock.

"While no one has a crystal ball to see exactly what is going to happen," Bowe said, "we can look back to understand the patterns of how these have previously played out."

If you're planning to sell your home and buy another one, then you're selling in a low market and buying in a low market. That's arguably going to be less stressful than the hyper-competitive experience buyers had in 2021.

"From now on, buyers can expect more engagement from real estate agents as the pool of buyers for each property is likely thinner," he said.

"These interactions can be used to your advantage and are full of rich insights… for instance, [if a seller is] asking for an early settlement, that often means the seller has committed to another home purchase.

If you're under financial stress, and/or the prospect of a more expensive mortgage has you thinking carefully about how you're going to afford your home loan repayments in the future, the falling property prices could be a concern.

The best thing you can do is take stock of your situation and look for ways to improve it. This could include:

  • Contact your lender if you're worried about your capacity to make repayments. You could ask for a mortgage repayment holiday or perhaps even switch from principal and interest loan to interest only for a period of time.
  • Refinancing your home loan. Even as interest rates rise, there are still lower-rate offers around so you can pay less on your monthly repayments. Check out some of the market's lowest rates.

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