Westpac predicts an 18 percent drop in house prices in Sydney, Melbourne

Westpac bank forecasts an 18 per cent drop in house prices in Sydney and Melbourne by the end of next year.

A series of interest rate hikes since May, the steepest in nearly three decades, has caused property values ​​to slide in Australia’s two biggest cities, along with Hobart.

The bank predicted that Brisbane, Perth and Adelaide would still see growth in 2022 before these cities suffered single-digit declines in 2023.

Sydney was forecast to be the hardest hit market this year, with a 10 per cent drop in 2022 followed by an 8 per cent drop in 2023.

That 18 percent decline, spread over two calendar years, would see Sydney’s median house price plummet by $236,495 to $1,138,475, compared to the December 2021 level of $1,374,970 in the data series. CoreLogic.

Westpac said there was a “rapid correction underway” because home borrowers were “more sensitive to rate hikes due to stretched affordability.”

An 18 per cent drop was also forecast for Melbourne, with an 8 per cent drop forecast for 2022 followed by a 10 per cent drop next year.

Westpac noted that Australia’s second most populous city was more sensitive to a “migration slowdown”.

This would see the median home price in the Victorian capital fall by $171,644 to $826,284 from $997,928 at the end of last year.

Hobart was expected to suffer a 6 per cent drop in 2022 followed by an 8 per cent drop the next year and Westpac noted its property market was “grossly unaffordable” compared to Tasmanian wages.

This would see midpoint house prices in the Tasmanian capital plunge 14 per cent or $101,020 by December 2023 to $646,167 from $747,187.

Westpac Senior Economist Matthew Hassan said property price corrections were now “well advanced and firmly entrenched” in New South Wales, Victoria and Tasmania as a result of interest rate hikes by the Bank of the United States. Reserve of Australia from May.

“The housing slowdown that started at the beginning of the year has accelerated and broadened over the past three months, fueled by a rapid series of large rate hikes from the RBA,” he said.

Home borrowers in May, June, July and August have faced rate hikes of 1.75 percentage points, the steepest since 1994, as a result of high inflation.

Westpac expects the cash rate, now at a six-year high of 1.85 percent, to rise to a 10-year high of 3.35 percent in February next year.

If that prediction materializes, a borrower with an average home loan of $600,000 would be paying $1,060 more each month in their mortgage payments, compared to May, when the cash rate was still at an all-time low of 0.1 percent.

But not all cities are falling as a result of fare increases, as Westpac expects Brisbane to enjoy a two per cent rise in 2022, followed by a six per cent drop in 2023.

A net drop of four per cent would see Queensland’s equity home prices slip back to $750,709 from $782,967 at the end of last year, a moderate decline of $32,258.

Adelaide was expected to enjoy an eight per cent rise in 2022 followed by a six per cent drop in 2023.

This year’s big gain, more than offsetting any losses next year, meant the median house price in South Australia’s capital would rise by $9,456 to $631,612 from $622,155, a net gain of two per cent.

The city “was still seeing strong sales, price increases, less susceptible to rate increases but will be affected,” Westpac said.

Perth was expected to enjoy a two per cent increase in 2022 before suffering a four per cent decline in 2023.

This two per cent net loss would see the median house price fall by $11,503 to $541,510 from $553,013 and Westpac noted that Western Australia’s wealthy mining capital was still better value.

“Stagnant but less stretched affordability, limited supply, buoyant mining sector support,” he said.

Australia’s inflation rose 6.1 percent in the year to June and the Reserve Bank expects it to hit a 32-year high of 7.75 percent by the end of 2022.