There is a wide range of views among experts as to the likely extent of the price declines.
Martin North, founder of Digital Finance Analytics, says it’s “highly likely” that the drop in property prices in our two largest cities will be the largest on record.
He says retail sales data released by the Australian Bureau of Statistics (ABS) this week means interest rates will likely have to rise significantly, which lenders are likely to pass on in full to their adjustable-rate mortgage customers. .
ABS figures show retail sales rose 1.3 percent in July, 16.5 percent higher than the same month a year earlier.
“The availability of credit is the biggest influence on [property] prices: Borrowing power is already down 20 percent,” North says, referring to the reduced amount of money buyers can borrow due to higher mortgage rates.
Russel Chesler, head of investments and capital markets at VanEck Australia, a provider of exchange-traded funds, says that despite higher interest rates and cost-of-living pressures, households continue to spend. And the job market remains strong, with employment continuing to grow, he says.
“Given such strong data, we can expect a 50 basis point rate hike from the RBA next week.
“We probably need to see more official rate hikes from the central bank to rein in spending, after the RBA started raising rates too late to tackle inflation,” he says.
However, Andrew Wilson, chief economist at My Housing Market, has a different opinion. He says there are some early signs that inflation and interest rates may peak sooner than expected.
He says the decline in property prices could bottom out in the first quarter of 2023, as immigration accelerates, increasing demand for homes.
The view among economists is that interest rates are likely to continue rising until they hit 2.5% or 3.5%, well above the current cash rate level of 1.85%.
Either way, it looks like property prices still have a way of falling.
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