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Property prices drop $175k: Aussies face ‘mortgage prison’

Australian $100 notes stacked on top of each other and a sold sign on a property.
Aussie property prices are set to drop even further. (Source: Getty)

Property prices are falling with those living in Sydney facing the biggest price drops in years.

Property forecasts from NAB found home prices in Sydney could drop by $175,087 by the end of next year with the median priced home falling to $1.10 million.

In Melbourne, the median house price is estimated to fall by $156,367 from now until the end of next year to $780,764.

The figures are based on CoreLogic’s adjusted median values, applying NAB’s property price forecasts.

RateCity research director, Sally Tindall, said Australia’s property market could be in for a bumpy ride over the next year.

“While some buyers’ budgets are shrinking, other buyers are tapping out altogether, in the hope of finding a cheaper deal down the track,” Tindall said.

“In the boom, a ‘fear of missing out’ drove property prices higher. Now a ‘fear of getting in’, is having the reverse effect.”

How far could house prices fall by the end of 2023?

City

Median house price (today)

Estimated house price (end 2023)

Difference to today $

Difference to today %

Sydney

$1,283,502

$1,108,415

-$175,087

-14%

Melbourne

$937,131

$780,764

-$156,367

-17%

Brisbane

$841,923

$733,484

-$108,439

-13%

Perth

$584,941

$493,111

-$91,830

-16%

Adelaide

$704,692

$583,864

-$120,828

-17%

Hobart

$761,368

$604,600

-$156,767

-21%

Aussies facing ‘mortgage prison’

Falling property prices have the capacity to force some borrowers into ‘mortgage prison’ where they are unable to refinance.

Borrowers who bought recently with a small deposit could find their equity (the amount of the home they own) falls below 20 per cent and stays there despite making all repayments.

People most likely to fall in this category are those who borrowed at the peak of house prices in their area, with small deposits such as first home buyers.

How much of your home do you really own?

RateCity.com.au analysis found if someone bought a median-priced house in Sydney in June 2021 with a 5 per cent deposit, they could owe the bank 5 per cent more than their home is worth by the end of 2023.

If that person bought their house with a 20 per cent deposit, they would own just 11 per cent of the property by the end of next year – rendering them in mortgage prison.

This is despite the fact they would have been paying down their debt for two years.

Sydney: What percentage of your property you own

Deposit size at purchase (June 2021)

Amount person owns – end 2023

5%

-5%

10%

0%

20%

11%

Borrowers in Melbourne could find themselves in a similar position. Someone who bought a median-priced house in June 2021, with a 5 per cent deposit, could owe the bank 10 per cent more than their home is worth by the end of next year.

Melbourne: What percentage of your property you own

Deposit size at purchase (June 2021)

Amount person owns – end 2023

5%

-10%

10%

-4%

20%

7%

“Falling property prices are typically good news for would-be first home buyers looking for a window in, however, with interest rates still on the rise, it’s not going to be a walk in the park,” Tindall said.

“They’ll be paying more in interest for the money they borrow against what is an uncertain backdrop.

“Anyone who bought at the peak should put the property news pages in the bottom drawer and focus on paying down their debt.”

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