The quick upswing in the Reserve Bank of Australia’s (RBA) cash rate target could potentially cause prices to decline further — but a turnaround in cash rate could be in the cards by 2023.
CBA head of Australian economics Gareth Aird said the pace at which home prices would go down would ultimately depend on the speed at which the RBA hikes the cash rate.
“Based on our updated forecast for the cash rate we expect home price falls nationally of around 15% over the next eighteen months. Prices in Sydney and Melbourne are anticipated to decline by more than the other capital cities,” he said.
Of all capital cities, only Brisbane, Adelaide, and Perth are likely to post home price gains for 2022 before joining the chorus of declines in 2023.
“The expected falls in home prices are significant. But context is key — price gains in 2021 nationally were extraordinary,” Mr Aird said.
“Therefore, a contraction in dwelling prices is a natural response to rising interest rates given it was record low interest rates that drove the phenomenal lift in prices in 2021.”
|
|
Price Growth Expectations (%) |
|
|
2022 |
2023 |
|
|
Sydney |
-11 |
-7 |
|
Melbourne |
-10 |
-8 |
|
Brisbane |
6 |
-10 |
|
Adelaide |
6 |
-11 |
|
Perth |
2 |
-8 |
|
Hobart |
-4 |
-9 |
|
Darwin |
-1 |
-9 |
|
Canberra |
-4 |
-9 |
|
Australia |
-6 |
-8 |
Likely rate cuts next year
Mr Aird expects the RBA to continue with the rate hikes over the next few months — together with economists from other banks, he projects the central bank to bring the cash rate by 1.6% in August.
“Based on our expectation for the RBA to front load the tightening cycle and take the cash rate to what we deem a contractionary setting of 2.10% by end-2022 we do not expect any further rate hikes in 2023,” he said.
Mr Aird said financial conditions will continue to tighten over 2023 even without any further rate increases by the RBA, especially with the large, fixed rate home loan expiry schedule.
“Fixed rate borrowers will be rolling off an average fixed rate mortgage of around 2.25% onto a rate with a 4-handle on it in 2023 based on our forecast profile for the cash rate — this will result in a very big step change in the interest cost on debt,” he said.
“Our expectation is that economic momentum will slow significantly under the weight of a contractionary monetary policy setting in 2023. As such we expect to see policy easing on the agenda in H2 2023.”
With this, Mr Aird is expecting the RBA to slash the cash rate by around 50bps anytime during the second half of 2023.
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| Lender | Home Loan | Interest Rate | Comparison Rate* | Monthly Repayment | Repayment type | Rate Type | Offset | Redraw | Ongoing Fees | Upfront Fees | Max LVR | Lump Sum Repayment | Additional Repayments | Split Loan Option | Tags | Features | Link | Compare | Promoted Product | Disclosure |
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Collections: Mortgage News Interest Rates
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