Where could house prices be in two years’ time if economists’ forecasts turn out to be correct

Sydney is expected to rise 9% and fall 7%, while Melbourne is expected to rise 5% and fall 6%.

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Last year’s strong gains are unlikely to be repeated in 2022, the bank warned, due to rising mortgage rates, limited affordability and a crackdown from the banking regulator that already reduces the maximum amount buyers can borrow. A return in demand from immigrant buyers is not expected to be sufficient to outweigh the increased cost of borrowing.

ANZ expects the cash rate to start rising in September and reach 2% by the end of 2023, but expects the fall in property prices to be only modest compared to the rise in both last years.

If that prediction were to come true, home values ​​would end 2023 barely changed from the end of 2021, with Sydney just $15,000 higher at $1.113 million and Melbourne $10,000 lower at around $785,000.

ANZ senior economist Felicity Emmett expects a soft landing in the property market as prices peak this year and fall next. But the buying landscape may look different two years from now with a higher cash rate.

“By the end of 2023, prices will eventually approach their current level,” she said.

Home values ​​have skyrocketed and are likely to rise a little more before falling.Credit:Peter Rae

Although house prices will fall as interest rates rise, reduced borrowing power would also make it harder for some to enter the housing market, Ms Emmett said.

Westpac is a bit more bearish on prices and tilts the spot rate to start rising in August, eventually hitting 1.75%.

Home values ​​are expected to rise just 2% this year, fall 7% in 2023 and another 5% in 2024 before leveling off, the bank said.

But in Sydney and Melbourne house prices are expected to end this year flat and fall 9% next year, with further falls in 2024 of 5% for Sydney and 6% for Melbourne.

Buyers are expected to face higher mortgage repayments.

Buyers are expected to face higher mortgage repayments.Credit:Peter Rae

That would leave Sydney’s median values ​​just below $1 million by the end of next year and around $950,000 by the end of 2024, while Melbourne would sit at around $723,000 a year later. next year and $680,000 by the end of 2024.

The bank said prices at the end of 2024 would be on par with their level in April of last year.

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Westpac chief economist Matthew Hassan said the bank’s surveys showed most consumers were only expecting 50 basis points of rate hikes and had yet to realize how much the interest rates were likely to rise.

Once they figure that out, it could halt house price growth, although Sydney and Melbourne could see bigger drops than relatively affordable cities like Brisbane and Adelaide.

“Initially, rising interest rates dominate the affordability picture,” he predicted.

“As we go through the price correction in 2023 and 2024, once rates stabilize, we get some improvement in affordability. This will likely only be the case if and when an easing cycle materializes, we will see an affordable market.

Wage increases could help potential home buyers, but the effect would only be marginal.

NAB economists expect the cash rate to rise from November and a turning point for house prices in the second half of this year.

Overall house prices are expected to rise 3% this year and fall 10% next, with Sydney by 1.9% and Melbourne by 1.2% this year, and the two cities by 11.4% in 2023.

That would leave Sydney values ​​around $107,000 lower by the end of next year, at just over $991,000. Melbourne values ​​would be $82,000 lower, or around $713,000.

“We do not view these declines as disorderly, with the labor market remaining strong, wage growth accelerating and rates remaining relatively low – albeit steadily rising,” wrote the NAB Group’s chief economist, Alan Oster, in a recent note to clients.

Gareth Aird, head of Australian economics at Commonwealth Bank made the headlines last week when he tipped the cash rate to start rising from June.

Housing prices might drop, but they might not be more affordable at first.

Housing prices might drop, but they might not be more affordable at first.

He had thought house prices would rise 7% this year, but he will now reassess. He still expects a 10% decline once prices peak.

“What eventually happens to house prices will be dictated by what happens when the Reserve Bank eventually changes interest rates,” he said.

“The sooner they raise the cash rate, the sooner it will peak.”

He noted that house values ​​in Sydney and Melbourne had remained broadly stable in February so far, as measured by the CoreLogic daily index, adding a month did not trend, but tentative evidence emerged that prices were about to peak in major capitals. .

If wages rise as the Reserve Bank hopes, it could help borrowers repay their loans, but raising interest rates would have a bigger impact than raising wages, he said. .

With Kate Burke

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