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Property expert says 10% house price fall 'nonsense'

·5-min read
Aerial view of a typical leafy Australian suburb.
Since 1987, the capital city housing market has had just three years where home prices have fallen. (Source: Getty)

If you’re keeping up with the financial media you couldn’t miss the forecasts of property price falls ahead.

And it’s no longer only the perpetual property pessimists - you know, those who have been getting it wrong time after time – that are suggesting this.

It’s now some of the regular media commentators and the bank economists.

Of course, they don’t all agree.

Some are suggesting prices will fall modestly as the cycle slows down, some think the falls will happen next year, while others believe they will occur in 2023 after another strong year of property price growth in 2022.

The ANZ bank is forecasting modest price falls of 4 per cent in 2023, while the CBA is suggesting prices could fall up to 10 per cent in 2023.

The average dwelling price is now $686,339, which means a 10 per cent fall would wipe $69,000 from values.

So, are they right?

Is it too late to buy in the current property cycle? Should we worry that the value of our home will plummet?

They are some of the questions I ask Dr Andrew Wilson, Australia’s leading housing market economist and chief economist of My Housing Market, in this week’s Property Insiders chat.

House prices to fall 10%... and other nonsense

Housing markets have generally recorded extraordinary price growth this year, driven by low-interest rates and rebound demand reflecting the interruptions to activity over recent years.

Sydney and Melbourne have led the charge over 2021, but growth – while still strong - has moderated over recent months.

Most other capitals, however, continue to report boomtime results.

Rising affordability barriers and the satisfaction of pent-up demand will continue to act to moderate buyer activity - particularly in Sydney and Melbourne.

Price growth – although certainly still positive - will be significantly lower over 2022 compared to the remarkable 2021 results.

Recent predictions of 10 per cent home price falls over 2023 based on forecasts of sharp increases in official interest rates are clearly non-sensical.

Since 1987, Australia’s capital city housing market has experienced only three years where home prices have fallen - 2008, 2011 and 2018.

And the price declines were clearly modest, falling by just 4 per cent, 4.1 per cent, and 5.1 per cent, respectively.

The last time the Reserve Bank of Australia (RBA) raised rates (November 2010) wages increased by nearly 4 per cent annually.

A graph showing information about property prices and wages growth.
(Source: supplied)

Higher interest rates were the catalyst for home price declines with official rates increasing from 5.5 per cent to 7.25 per cent between 2006 and 2008 and up from 3 per cent to 4.75 per cent between 2009 and 2011.

Price declines over 2018 reflected an APRA-enacted bank credit squeeze – particularly directed towards investors, that resulted in higher mortgage rates and restrictive lending conditions.

The prospect of similar sustained increases in official interest rates to drive down home prices is currently clearly fanciful.

The RBA recently yet again stipulated that, “Given the latest data and forecasts, the central scenario for the economy continued to be consistent with the cash rate remaining at its current level until 2024”.

For wages growth to meet the RBA requirements for a rate rise by November 2022 - the date predicted by those forecasting record price falls in 2023 - would require an unprecedented surge in incomes over the coming months.

With wages growth still at subdued levels despite the post-lockdown recovery and the jobless rate surging to a seven-month high, the prospect of wages growth quickly returning to the boomtime levels last experienced more than a decade ago are remote at best.

And the recent government announcement of a flood of 200,000 migrants set to enter Australia over the short-term will sharply increase demand for currently available jobs.

And of course, a quick return to high migration levels will again place upward pressure on home prices in our still-undersupplied housing markets.

Another weekend of strong auction results

The late spring flood of properties for sale by auction is predictably continuing to push clearance rates down in all capital cities although, generally, the results still remain in favour of sellers.

The national clearance rate fell to a three-month low, with only Canberra reporting a result above 80 per cent over the weekend.

A graph showing information about property prices and wages growth.
(Source: supplied)

Watch this week’s Property Insider video as we discuss how most cities continue to record generally strong results for sellers.

Sydney clearance rates rise despite record November day

Clearance rates bounced back in Sydney at the weekend despite a continuing record flood of end-of-year auctions.

Sydney recorded a clearance rate of 77.2 per cent, which was higher than the previous weekend’s 76.3 per cent, but lower than the 80.8 per cent recorded over the same weekend last year.

A record 1,234 homes were listed for auction on Saturday, which was well ahead of the previous weekend’s 1,075 and significantly higher than the 781 auctioned over the same weekend last year.

The clearance rate for houses were 78.3 per cent, with units lower at 74.4 per cent.

A graph showing information about property prices and wages growth.
(Source: supplied)

Record-breaking listings dent Melbourne clearance rates

Melbourne’s weekend auction market concluded November with a new record number of listings.

The recent surge in auction numbers has predictably acted to put downward pressure on clearance rates that nonetheless continue to favour sellers.

Melbourne reported a clearance rate of 69.8 per cent on Saturday, which was lower than the previous weekend’s 72.5 per cent and also lower than the 75.6 per cent recorded over the same weekend last year.

The clearance rate for houses was 70.3 per cent, with units lower at 67.3 per cent.

A graph showing information about property prices and wages growth.
(Source: supplied)

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